Project "Sela" will focus on Two-Tier
Retail CBDC with Exposure-less Cyber Secure Intermediaries
The BIS Innovation Hub, the Bank of Israel
and the Hong Kong Monetary Authority will join forces to test the feasibility
of a cyber secure two-tier retail CBDC. In the proposed model the
intermediaries will have no financial exposure resulting from their customers'
on-boarding, holding or transferring CBDC, therefore reducing the risk and
costs associated with financial intermediation. The project, led
by the Innovation Hub's Hong Kong Centre, is planned to kick off in the third
quarter of 2022 and publish its findings by the end of the year.
Traditionally,
central bank money is provided to the public indirectly – by the commercial
banks. Even in digital payment systems, transferring funds from one end to
another usually entails, even if for a short time, a financial exposure of the
intermediaries that are involved in the transaction. This project will explore
the feasibility of an architecture in which intermediaries in the two-tier
system are "exposure-less" - they
provide technological access to the CBDC system, conduct the "Know Your Customer"
processes, and provide consumer services, but are not financially exposed, at
any point of the processes of obtaining, transferring, or redeeming CBDC. This architecture
is assumed to have several benefits: Less financial risk for the
customer, more liquidity, lower costs, increased competition, and wider access.
Cyber security issues
regarding two-tier retail CBDC will also be addressed. The project will test if
intermediaries’ financial exposure-less nature can lend itself to a more cyber secure
solution to end users. In particular, if through distributing the
intermediaries and the services they provide along with layered data
obfuscations, it might be possible to provide a service that is more resilient
to sophisticated cyber attacks.
Mr. Andrew Abir,
Deputy Governor of the Bank of Israel, said:
"Providing an efficient payment system that will increase competition in
the payment market is one of the primary motivations we've identified for a
possible issuance of a digital shekel - an Israeli CBDC. We are delighted for
the opportunity to test this model together with excellent and experienced
partners such as the BIS Innovation Hub and the Hong Kong Monetary Authority. Accessing
Israel's well known experience in cyber security is a great opportunity to
support the global research of CBDCs".
Mr Howard Lee,
Deputy Chief Executive of the HKMA, said, “We are pleased to team up
with the Bank of Israel and the BIS Innovation Hub Hong Kong Centre to conduct
Project Sela. Not only is the tripartite
project a significant milestone in the HKMA’s CBDC journey, it also marks the
first collaboration between Hong Kong and Israel on the fintech front. We trust that with the expertise offered by
Israel, a global leader in cybersecurity, the findings of the joint project
would add to the wealth of knowledge on CBDC and contribute to the common good
of the international central banking community.”