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CBDCs: HKMA and Bank of Israel Issue Joint Report on Project Sela, with Emphasis on Retail CBDC Implementation

The Hong Kong Monetary Authority (HKMA) has released a joint report on Project Sela, which focuses on the cybersecurity, technical, and policy aspects of a retail Central Bank Digital Currency (CBDC) implementation. The report was issued in collaboration with the Bank of Israel (BOI) and the Bank for International Settlements Innovation Hub (BISIH) at an event hosted by the BOI in Tel Aviv on September 12, 2023.

Project Sela aimed to explore the feasibility of a CBDC system where the reserve bank manages the retail ledger and a new type of intermediary, known as an Access Enabler, provides broader access to the CBDC, while promoting competition and innovation.

Howard Lee, Deputy Chief Executive of the HKMA, expressed satisfaction with the completion of the project, which offered valuable insights into the technical and policy aspects of a retail CBDC. Lee stated that a decision on whether or not to issue an “e-HKD” had not yet been made, but the initiative would serve as a valuable resource as they continue to explore the possibility.

Bank of Israel Deputy Governor Andrew Abir emphasized that competition and innovation require an open ecosystem with multiple service providers. He described Project Sela as a proof-of-concept that successfully demonstrated the feasibility of their envisioned model. Abir also highlighted the importance of cybersecurity for digital central bank money and commended the opportunity the project provided to discuss and study cybersecurity elements of CBDC with their partners.

Bénédicte Nolens, Head of the BIS Innovation Hub Hong Kong Centre, added that Project Sela illustrated that a CBDC system controlled by a central bank, along with the inclusion of an “Access Enabler,” could be implemented without compromising privacy and security.

Numerous jurisdictions worldwide are currently exploring the possibility of issuing digital currencies. However, concerns about privacy and the potential for central governments to exploit their control and insight for policy decisions beyond value transfers remain significant. Some industry experts suggest that a regulated, privately issued stablecoin might be a more suitable approach, as it maintains a distance from government interactions. Alternatively, a CBDC could be exclusively accessible to financial institutions.

The full report can be accessed on the HKMA website.

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