A New Initiative Tests Feasibility of Retail Central Bank Digital Currency

A collaborative project called Project Sela aimed to test and develop a central bank digital currency (CBDC) suitable for mass retail use. The Bank for International Settlements (BIS), the Hong Kong Monetary Authority (HKMA), and the Bank of Israel have demonstrated the feasibility of a secure retail central bank digital currency (rCBDC), according to an update shared on September 12.

Project Sila, a joint experiment coordinated by the Bank for International Settlements, has shown that rCBDC can provide the benefits of fiat currency without compromising cybersecurity, user privacy, and accessibility. The project leveraged the ongoing work of the Central Bank of Israel on the digital shekel and a case study conducted by the Hong Kong Monetary Authority on the potential for creating an electronic Hong Kong dollar.

The Introduction of “Access Enabler” for Central Bank Digital Currencies

The joint venture introduced a new intermediary system for central bank digital currencies called “Access Enabler.” This system mitigates liquidity and settlement concerns by not holding users’ rCBDC tokens on its balance sheet. It is expected to lower the operating costs of blockchain-based payment services.

Howard Lee, executive vice president of the Monetary Authority, believes that the Sila project could help advance Hong Kong’s progress on government-issued digital currency. He also added that other apex banks from different countries can benefit from Sila’s results in building their own CBDC infrastructure and ecosystem.

“The project proved the feasibility of the model we had in mind. If central bank money is to become digital, cybersecurity is key, and the project has provided an opportunity to discuss and study the cybersecurity elements of central bank digital currencies with our partners.”

– Andrew Abir, Deputy Governor of the Bank of Israel

Central Bank Digital Currencies Around the World

Central bank digital currencies are digital representations of fiat currencies issued by sovereign governments or central banks. The concept dates back to approximately 1985 and was mentioned in a financial paper written by James Tobin.

While countries like China, Jamaica, and Nigeria have launched their own central bank digital currencies, US policymakers, such as Republican Representative French Hill, remain opposed to retail central bank digital currencies, citing broad risks to the US financial system. Federal Reserve Governor Michelle W. Bowman has also expressed concerns about CBDCs outweighing the benefits.