The Bank for International Settlements and the central banks of Hong Kong and Israel released the results of the Sela Project on September 12. The project was a public-private partnership that used private intermediaries to create a retail central bank digital currency (rCBDC) that combines the desirable features of cash and the advantages of digitalization.
The project leveraged the diverse expertise of central banks to incorporate a series of predefined policies, security, technology and legal features. Private participants were fintechs FIS and M10 Networks, which provided core products, Clifford Chance for legal analysis and Check Point Software Technologies for cybersecurity. The project was a proof of concept.
The Sela Project proposes a new financial infrastructure, Access Enabler, that facilitates customer-facing activities without having to retain users' rCBDC. Eliminates complexity, costs and risks compared to current payment providers. #BISInnovationHub @hkmagovhk https://t.co/znVp81gQol pic.twitter.com/hItQamQc0K
โ Bank for International Settlements (@BIS_org) September 12, 2023
In the Sela ecosystem, the central bank issuing an rCBDC maintains the ledger with pseudo-anonymous end-user accounts and provides instant settlement with a real-time gross settlement (RTGS) system. Financial institutions manage user accounts and convert rCBDC into bank deposits and cash. An intermediary called an access enabler handles all customer-facing services, including fulfillment, backups, and Know Your Customer routing, while end users maintain control over their e-wallets with cryptographic keys.
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An advantage of the ecosystem is its accessibility to private financial institutions that carry out unbundled financial services, which will supposedly increase competition and lead to greater user access. Access enablers do not create accounts, manage records, or control money, which reduces the regulatory requirements placed on them:
โLower barriers to entry may allow for broader participation in the provision of rCBDC services, compared to the existing payments market, to include, for example, SMEs. [small- and medium-sized enterprises]civil society and charitable organizations, e-commerce providers, community centers and technology companies, among others.โ
Financial institutions are understood in the traditional sense of banks, credit unions, and similar organizations. Therefore, it does not lead to disintermediation. Users of the Sela rCBDC Project would not have to be account holders to use the services of those institutions to convert an rCBDC into cash. Payments are settled by central banks and users control their money at all times. Central bank participants are supposed to be the operators of the distributed ledger system.
A weakness of the system noted in the report is RTGS systems, as they are typically not available 24 hours a day and are not designed for small, frequent transactions. Possible technical solutions are discussed.
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