The Hong Kong Monetary Authority (HKMA) has joined forces with the Bank of Israel (BOI) and the Bank for International Settlements Innovation Hub (BISIH) Hong Kong Centre to release a joint report on “Project Sela – An accessible and secure retail CBDC ecosystem”. The report was unveiled at a conference in Tel Aviv on 12 September.
Project Sela marks the inaugural collaboration between the two central banks in the fintech domain. The initiative underscores the technical viability of a retail central bank digital currency (CBDC) framework that can foster competition and innovation in digital payments. This is achieved by permitting non-bank payment intermediaries to link directly to the CBDC ledger maintained by the central bank. The prototype, built on distributed ledger technology (DLT), serves as a testament to how the technical execution of the proposed structure can meet stringent cybersecurity, legal, and policy mandates.
Howard Lee, Deputy Chief Executive of the HKMA, commented on the project’s significance, stating, “Project Sela has offered invaluable hands-on insights into the cybersecurity, technical, and policy dimensions of retail CBDC deployment.” He further added that while the HKMA hasn’t finalized its stance on launching an e-HKD in Hong Kong, the findings from Project Sela will guide their continued research.
Andrew Abir, Deputy Governor of the BOI, emphasized the project’s role in fostering competition and innovation. He noted, “If central bank funds are to transition to a digital format, cybersecurity remains paramount. Project Sela has facilitated a comprehensive discussion on the cybersecurity facets of CBDC with our collaborators.”
Bénédicte Nolens, Head of the BIS Innovation Hub Hong Kong Centre, shed light on the project’s exploration into a CBDC system where the central bank manages the retail ledger. She highlighted the introduction of an “Access Enabler” intermediary, which broadens CBDC access, thereby stimulating competition and innovation, without compromising on cybersecurity or user privacy.
The Hong Kong Monetary Authority (HKMA) has been exploring Central Bank Digital Currency (CBDC) since 2017, leveraging Distributed Ledger Technologies (DLT). In 2017, the HKMA initiated Project LionRock, focusing on large-value payments.
By 2019, in collaboration with the Bank of Thailand, they launched Project Inthanon-LionRock, which evolved into the Multiple CBDC Bridge (mBridge) by 2021, emphasizing real-time cross-border transactions.
In Q3 2022, mBridge underwent a pilot phase, settling over HK$171 million in transactions. On the retail front, the HKMA is considering an e-HKD, with a technical whitepaper released in 2021 and a position paper in 2022 outlining its three-rail approach to implementation.
The Rail 2 – e-HKD pilot programme was launched in November 2022, inviting stakeholders to explore e-HKD applications.
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