- Project Sela focuses on expanding CBDC intermediaries beyond banks and major payment providers.
- Central banks emphasize cybersecurity and privacy, especially as CBDC initiatives expand.
Expanding the CBDC Horizon: A Shift from Tradition
Today, a groundbreaking report emerged from a collaboration between the Hong Kong Monetary Authority (HKMA), the Bank of Israel (BoI), and the BIS Innovation Hub. Centered on Project Sela, the focus wasn’t just about pioneering a Central Bank Digital Currency (CBDC) but revolutionizing its very framework.
Traditionally, CBDCs have been bound to public-private partnerships with banks and mainline payment providers as the gateway for consumers. Project Sela diverges from this norm. Instead of narrowing down to banks, the vision is to encompass a broad spectrum of intermediaries for retail CBDC access. Andrew Abir, Deputy Governor of the BoI, encapsulated the project’s ethos, emphasizing an
“open ecosystem with many different types of service providers.”
Contrasting earlier undertakings, like Hong Kong’s Project Aurum which had retail banks in the consumer forefront, Project Sela envisions the central bank managing the retail ledger. Such a direction draws parallels with Israel’s approach to its digital shekel. A key deduction from this strategy is a concerted effort to widen service provider inclusivity, calling for diminished regulatory encumbrances and lowered entry barriers.
The Rise of Access Enablers in the CBDC Arena
To truly democratize CBDC accessibility, the novel role of Access Enablers (AE) was conceptualized. These AEs differ radically from traditional payment providers; they never directly manage CBDC balances and don’t require liquidity to facilitate CBDC services. Their responsibilities span ensuring CBDC access, overseeing customer compliance mandates, and directing payments. Banks, on the other hand, streamline the conversion from tangible cash and deposits to CBDC.
This architectural shift is inspired by progressive technological strides in open banking and decentralized finance (DeFi), which have underscored the potential of decoupling financial services, granting consumers direct fund control.
But what about those without bank accounts? Project Sela has a solution. It foresees such unbanked individuals employing ATMs to transition from cash to CBDC.
A Renewed Focus on Privacy and Cybersecurity
With central banks steering the retail ledger, the sanctity of personal information becomes paramount. AEs play a pivotal role here, obscuring personal identifiers via advanced hashing mechanisms. Still, challenges linger. If a central bank ever deciphers an account for regulatory compliance, the account’s identity will perpetually be unveiled.
This expanded network of intermediaries also amplifies the importance of cybersecurity. While the project’s current ambit is restricted to the security of the rCBDC ledger, the gates to potential vulnerabilities are wider, necessitating a fortified defense mechanism.
Furthermore, Project Sela delved into safeguarding digital keys, employing hardware security modules for central banks and cloud-hosted secure enclosures for AEs.
Among the myriad areas identified for future exploration, determining incentives for these Access Enablers stands out prominently. Prominent tech entities like FIS and M10, coupled with legal giants like Clifford Chance and cybersecurity experts Check Point, provided foundational support for this ambitious CBDC endeavor.