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CBDC Collaboration Between Central Banks of Hong Kong and Israel

The HKMA, Bank of Israel, and BIS Innovation Hub release a report on “Project Sela,” showcasing the feasibility of a retail CBDC framework promoting innovation and cybersecurity.

Key Points

  • HKMA, Bank of Israel, and BIS Innovation Hub release joint report on “Project Sela” for retail CBDC feasibility.
  • Project Sela allows non-bank intermediaries direct access to CBDC ledger via DLT.
  • Howard Lee, HKMA Deputy Chief, values report’s insights for ongoing CBDC research.
  • BIS Innovation Hub’s Bénédicte Nolens introduces “Access Enabler” for CBDC competition with cybersecurity.

The Hong Kong Monetary Authority (HKMA), in collaboration with the Bank of Israel (BOI) and the Bank for International Settlements Innovation Hub (BISIH) Hong Kong Centre, has unveiled a joint report on “Project Sela – An accessible and secure retail CBDC ecosystem.”

The report, which highlights the technical feasibility of a retail central bank digital currency (CBDC) framework, was presented at a conference in Tel Aviv on September 12, 2023.

Project Sela and its Significance

Project Sela is a groundbreaking initiative between the HKMA and the BOI in the fintech sector.

It demonstrates how a retail CBDC framework can promote competition and innovation in digital payments by allowing non-bank payment intermediaries to directly access the CBDC ledger maintained by the central bank.

The project’s prototype, built on distributed ledger technology (DLT), showcases the successful execution of the proposed structure while meeting cybersecurity, legal, and policy requirements.

Howard Lee, Deputy Chief Executive of the HKMA, emphasized the value of Project Sela in providing vital insights into the cybersecurity, technical, and policy aspects of deploying a retail CBDC.

He stated that while the HKMA has not yet made a final decision on launching an e-HKD in Hong Kong, the findings from Project Sela will inform their ongoing research.

Andrew Abir, Deputy Governor of the BOI, highlighted the role of Project Sela in fostering competition and innovation.

He stressed the importance of maintaining robust cybersecurity measures when transitioning central bank funds into a digital format, stating that Project Sela facilitated an extensive discussion on the cybersecurity aspects of CBDC.

Bénédicte Nolens’ Perspective

Bénédicte Nolens, Head of the BIS Innovation Hub Hong Kong Centre, shed light on Project Sela’s exploration of a CBDC system where the central bank manages the retail ledger.

She highlighted the introduction of an “Access Enabler” intermediary, which broadens CBDC access, stimulating competition and innovation without compromising cybersecurity or user privacy.

The HKMA has been actively exploring CBDC since 2017, utilizing DLT. They initiated Project LionRock in 2017, focusing on large-value payments.

Subsequently, in collaboration with the Bank of Thailand, they launched Project Inthanon-LionRock in 2019, which later transformed into the Multiple CBDC Bridge (mBridge) in 2021, prioritizing real-time cross-border transactions.

Concluding Thoughts

In the third quarter of 2022, mBridge entered a pilot phase, settling over HK$171 million in transactions.

On the retail front, the HKMA is considering launching an e-HKD, having released a technical whitepaper in 2021 and a position paper in 2022 outlining their three-rail approach to implementation.

The Rail 2 – e-HKD pilot program commenced in November 2022, inviting stakeholders to explore e-HKD applications.