The Bank for International Settlements (BIS) along with the central banks of Hong Kong and Israel to unveiled the results of Project Sela, a pioneering venture that promises to reshape the world of digital currency. This innovative public-private partnership leveraged the expertise of central banks and fintech giants to introduce a retail central bank digital currency (rCBDC) that combines the best of both physical cash and the digital age.
Project Sela, a remarkable proof-of-concept, was brought to life through a collaboration that featured key private sector participants, including fintech leaders FIS and M10 Networks, Clifford Chance for legal analysis, and Check Point Software Technologies for cybersecurity.
In the Sela ecosystem, each central bank responsible for issuing an rCBDC maintains its ledger, safeguarding pseudo-anonymous end-user accounts and offering instantaneous settlement through a real-time gross settlement (RTGS) system. Funding institutions, in turn, manage users’ accounts and seamlessly facilitate the conversion of rCBDC into bank deposits or physical cash.
The critical role of intermediaries, known as access enablers, is to provide customer-facing services, such as Know Your Customer compliance, endorsements, and routing. Crucially, end users retain control over their electronic wallets through cryptographic keys, ensuring the security of their digital assets.
By bridging the divide between conventional cash and the convenience of digitization, Project Sela represents a turning point in the development of digital currency. Let’s look at some additional important developments in the field of Central Bank Digital Currencies (CBDCs) as the BIS continues to pioneer cutting-edge innovations.
In March 2023, the BIS, in conjunction with the central banks of Israel, Norway, and Sweden, unveiled the results of Project Icebreaker. This cross-border payment model introduced the “hub-and-spoke” approach, demonstrating its potential to benefit both banks and retail customers. By breaking down cross-border transactions into two domestic payments and utilizing competitive quotes to secure the best exchange rates, Project Icebreaker effectively reduces fees and transaction delays. The BIS lauded this as a “competitive set-up” that minimizes liquidity risks, further propelling the adoption of CBDCs on a global scale.
Fast forward to June 2023, the BIS released a visionary blueprint for a global “unified ledger” designed to support CBDCs and tokenized assets. This transformative plan envisions a future where programmable platforms overseen by central banks drive the tokenization of monetary systems. Tokenization, heralded as the next major leap in the evolution of financial transactions, digitizes and represents claims on a programmable platform. This revolutionizes the way financial transactions are executed, promising a more efficient and secure global financial ecosystem.
A paradigm shift in the way we conduct financial transactions is taking place as Project Sela and other trailblazing programs continue to reshape the landscape of central bank digital currencies. The BIS is laying forth a plan for a digital future that blends the security of conventional cash with the benefits of digitization in cooperation with central banks and private sector entrepreneurs. Watch these innovative breakthroughs emerge as they continue to influence how finance will develop in the future.