Diversifying the Central Bank Digital Currency (CBDC) ecosystem has become a key objective for the Hong Kong Monetary Authority (HKMA), the Bank of Israel (BoI), and the BIS Innovation Hub through their joint venture, Project Sela. The initiative aims to reduce reliance on traditional banks and major payment providers for CBDC accessibility by introducing Access Enablers (AE) and putting the central bank in charge of the retail ledger.
Unlike previous CBDC initiatives, where retail banks were primarily customer-facing, Project Sela takes a different approach. By putting the central bank at the forefront of the retail ledger, it adopts a model similar to Israel’s digital shekel. The core objective behind Project Sela is to foster competition and innovation by creating a diverse ecosystem of service providers.
To accomplish this, Project Sela introduces Access Enablers, which are entities responsible for onboarding users, ensuring compliance, and routing payments. Unlike traditional payment gateways, Access Enablers don’t have control over CBDC balances or the need to maintain liquidity for CBDC services. On the other hand, banks and similar “funding institutions” are primarily tasked with converting cash and deposits to CBDC.
This strategic alignment draws from the advancements in open banking and Decentralized Finance (DeFi), emphasizing open access to financial data and empowering end users to manage their funds directly. The goal is to enable the unbanked to convert cash to CBDC via ATMs, although it is important to consider the design variations of ATMs across different countries.
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While Project Sela strives to provide seamless CBDC accessibility, it also prioritizes user privacy and security. Access Enablers employ a hashing mechanism to obfuscate personal identifiers, ensuring privacy for users. However, in cases where central banks need to conduct regulatory checks, such as anti-money laundering measures, personal identities may need to be transparent, presenting a potential challenge in terms of privacy.
Moreover, the introduction of multiple intermediaries raises cybersecurity concerns. Project Sela takes a cautious approach by safeguarding the CBDC ledger and not allowing any third-party programs to run on the primary ledger. Instead, programmability is delegated to Access Enablers. Additionally, secure enclaves hosted on cloud platforms are utilized for Access Enablers, while central banks and financial institutions rely on hardware security modules (HSMs) to protect private keys.
The exploration of Project Sela involved collaborations with various industry experts. FIS and M10 contributed technology-wise to the CBDC aspect of the project, with Clifford Chance offering legal counsel and Check Point overseeing cybersecurity.
As the CBDC landscape continues to evolve, the introduction of Project Sela and its focus on diversifying intermediaries marks a significant shift. By reducing reliance on traditional banks and major payment providers, the CBDC ecosystem becomes more competitive and innovative. This change not only benefits end users but also opens up opportunities for a wider range of entities to offer retail CBDC services.
In conclusion, Project Sela aims to transform the CBDC ecosystem by introducing Access Enablers and placing the central bank in charge of the retail ledger. This diversification of intermediaries reduces reliance on traditional banks and major payment providers, fostering competition and innovation. While privacy and security are paramount, Project Sela leverages advancements in open banking and DeFi to create a more accessible and user-centric CBDC infrastructure. With collaborations from industry experts, Project Sela paves the way for a tokenized future that expands beyond the limitations of traditional financial institutions.
