Setting foot into the future finance infrastructure, Israel and Hong Kong have recently completed their retail central bank digital currency (rCBDC) test runs, focusing on private participation, inclusivity and security. What’s interesting about this project, known as Project Sela, is that it marries the desirable characteristics of cash with the advantages of digitization, raising a complex myriad of policy, security, technology and legal issues, all delicately addressed.
The crowning glory of Sela was the ecosystem accessibility— the untying and rebundling of financial services is expected to increase competition and broaden user access. The easing of regulatory requirements on access enablers, who handle customer-facing services but do not manage user accounts or control money, made this possible. This could open doors for groups like small and medium-sized enterprises, charitable organizations, e-commerce providers, community centers and tech companies, making rCBDC services more inclusive.
But it’s not all sunshine and rainbows in the digital currency ecosystem. A system perceived weak point in the real-time gross settlement (RTGS) system was noted by the report. Given these RTGS systems aren’t available round the clock and aren’t designed for frequent small transactions, this could pose a significant technological hurdle down the road.
In another aspect, the BIS and the central banks of Hong Kong and Israel championed the use of private intermediaries, as part of their public-private partnership approach in the rCBDC realization. The use of private intermediaries in a centralised currency system offers more control and transparency to the end users compared to the traditional banking system. End users control their digital wallets with cryptographic keys, and payments are settled by the central banks, thus creating a balanced alliance.
As it stands, Project Sela has marked an interesting stride in the digital banking structure. It provides end users the familiarity of a traditional banking system with the benefits of a digitalized one. Still, the road to mainstream acceptance may not be without hurdles, with us needing to pay attention to the developmental challenges that RTGS systems can bring.
While the rCBDC system is currently just a concept, the test runs are promising – but the optimistic outlook still carries a tinge of skepticism. How these dichotomies develop in the actual implementation will sculpt the future of mainstream digital currency in the financial sector. Added to this will be the ever-vigilant watch of regulatory bodies to ensure that user interests are protected amidst this financial digital revolution.
Cynic or not, keeping an ear out for developments in the digital currency sphere is compulsory for anyone interested in the financial landscape’s future. One thing is for sure: interesting times lie in our financial future as cash courts digitalization.
Source: Cointelegraph
