In the universe of central bank digital currencies (CBDCs), technological innovation and financial stability inescapably intertwine. On this interconnected chessboard, the Bank for International Settlements’ Project Sela manoeuvres with grace, employing novel intermediaries to reduce liquidity risk—a move of strategic simplicity yet profound implications for the digital currencies of Israeli Shekel and Hong Kong Dollar.
Project Sela shines a new light on CBDCs’ potential, hinting at a future where these digital toolsets, as secure and private as their conventional counterparts, can allow transactions to be settled directly on the central bank’s ledger. With such potential within grasp, central banks around the globe seem keen to join the digital transformation. Subsequently, the burning question arises: how to fortify these systems against hacks and ensure their wide and safe distribution? “If central bank money is to go digital, cybersecurity is the key,” states Andrew Abir, Deputy Governor of the Bank of Israel, affirming the success of Project Sela’s security-centric approach.
Project Sela advances an innovative method, leveraging a “novel type of intermediary” responsible for client-oriented services, thus eradicating the liquidity risk associated with direct fund handling. Despite the transparency of transactions settled on the central bank’s balance sheet, the discrete application of personal identifiers ensures adequate privacy for users—an aspect that’s been at the core of concerns around CBDCs, particularly the possibility of using China’s Digital Yuan as an instrument for social control.
This trailblazing endeavour has certainly caught the eye of the Hong Kong Monetary Authority. Deputy Chief Executive Howard Lee indicates Project Sela outcomes “will inform our ongoing exploration” into the potential creation of a digital Hong Kong Dollar. Ultimately, the evolving landscape of CBDCs, according to BIS research, beholds close to 93% of the world’s central banks evaluating the potential of issuing their own digital currencies, indicating a future where the virtual entangles with the tangible.
However, as central banks globally continue their uphill journey of digitisation, the terrain ahead remains filled with obstacles, uncertainty, and numerous security risks. But with the successes of initiatives like Project Sela, the future of money seems destined to ebb steadily towards a secure and efficient digital frontier.
Source: Coindesk
