Central banks worldwide are actively exploring the potential issuance of central bank digital currencies (CBDCs), and the Bank for International Settlements (BIS) has now shed light on how these digital currencies can be both secure and private while settling transactions on the central bank’s ledger.
BIS has revealed the results of its project Sela, a groundbreaking initiative that delves into the security and privacy aspects of CBDCs. In a world increasingly digitized, the security of digital financial systems is essential, and Project Sela has showcased a feasible model for achieving this.
Andrew Abir, Deputy Governor of the Bank of Israel, highlighted the importance of cybersecurity in the digital transformation of central bank money, especially as the Bank of Israel explores the possibility of issuing a digital shekel. He stated,
“If central bank money is to go digital, cybersecurity is key. The project proved the feasibility of the model we had in mind.”
One of the key takeaways from project Sela is the preservation of privacy. Transactions within this framework were settled directly on the central bank’s balance sheet, yet personal identifiers remained “obfuscated,” ensuring that individuals’ privacy was safeguarded.
Notably, while many CBDCs, like the European Union’s proposed digital euro, rely on banks and other payment providers as intermediaries between central banks and the public, Project Sela introduced a unique approach. It utilized what it calls a “novel type of intermediary” to manage customer-facing services, all while mitigating the liquidity risk associated with holding funds directly.
Previous research by BIS indicated that a significant majority of central banks worldwide 93% are exploring the possibility of issuing CBDCs. While this digital transition holds numerous advantages, as recently reported by todayq News on August 30, 2023, Jamaica’s bus and taxi operators are quickly embracing the country’s new digital currency, Jam-Dex.
The results of Project Sela serve as a valuable reference point for ongoing CBDC exploration worldwide. Howard Lee, Deputy Chief Executive of the Hong Kong Monetary Authority, which participated in the project, noted that the outcomes “will inform our ongoing exploration” of a potential digital Hong Kong dollar (e-HKD). As central banks continue to adapt to the digital era, the findings of project Sela highlight the importance of striking a balance between security, privacy, and efficiency in the development of central bank digital currencies.