The Bank of Israel is joining forces with the Hong Kong Monetary Authority and the Bank of International Settlements (BIS) to test the feasibility of a cyber-secure two-tier central bank digital currency (CBDC).
The BIS’ Innovation Hub in Hong Kong will lead this project called the “Sela project”.
The intermediaries in the two-tier system may provide technological access to the CBDC system, conduct “Know Your Customer” processes, and provide consumer services without financial exposure.
It is unlike traditional ways of central bank funds being provided to the public via commercial banks.
This move is expected to reduce risk and costs while increasing liquidity and competition. It will also assess whether this makes it less vulnerable to cyber attacks.
The Sela project is set to begin in the third quarter of 2022, with results expected by the end of the year.
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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.”
In late last year, the Bank of Israel speeded up its research and preparation for the possible issuance of a digital shekel.
