- The Bank Of Israel (BOI) intends to launch the Central Bank Digital Currency (CBDC), the digital shekel.
- The Bank has yet to arrive at a formal decision, but it has indicated some justifications for issuing a CBDC.
- Notably, the regulator has given probable reasons for issuing digital currency in the coming future.
On April 17, the Bank of Israel (BOI) asserted that it is potentially preparing an action plan to issue a government-backed Central Bank Digital Currency (CBDC). However, it has yet to make any formal decision on the same. The BOI Steering Committee outlined possible scenarios for developing and deploying a CBDC, “SHAKED.” The regulator has debated some circumstances that would facilitate a favorable decision.
The Bank has identified five major factors that could influence a decision on issuing a digital shekel. The 21-page paper noted that the increased adoption of stablecoins might impair the payment system. Before that, it stated that the stablecoins not pegged to the Shekel might also harm the monetary transmission.
“At this point, there are no signs of substantial adoption of stablecoins as a means of payment in Israel. However, paying habits of the public might change rapidly, for instance, in a scenario of issuance by a major private sector entity.”
BOI’s justification for issuing CBDC
Another potential drive is CBDC issuance by other countries, including the U.S. and the European Union. Most of Israel’s trade and capital flows dominate in dollars and euros. A CBDC enabling international payments with these economies would significantly improve efficiency. Notably, if enough countries want to issue a CBDC, this could tip the scales and force Israel to be in line.
On the other hand, the committee noted that another potential drive would be the decline in the use of cash in Israel. As money is used in a significant portion of consumer transactions in Israel, changing the public’s payment habits may lead to a shift from using the central bank fiat. The BOI does not want this scenario or other private entities controlling payments. So, CBDC could be a favorable solution.
The final two factors elaborated on the risks and opportunities in the domestic payment system. Various countries always view CBDCs as a tool to force interoperability among payment systems and prevent private walled gardens from becoming dominant. Conversely, the BOI sees the digital Shekel as a potential competitor that could deal with some segments. Notably, technological developments could deliver efficient and secure platforms for CBDC use. However, the full extent of these benefits is quite challenging to assess at this stage.
Israel seems to be shadowing the United States regarding crypto regulation. Early this year, the country’s regulator proposed legislation classifying crypto assets as securities. The regulator outlined its purpose to achieve the double value of responding to risks associated with investing in digital assets and giving authority means to adopt a regulation.
