Bank of Israel Explores CBDC Development
The Bank of Israel has announced that it is actively exploring the potential issuance of a central bank digital currency (CBDC) in response to the growing use of stablecoins and other digital payment methods. The central bank aims to maintain control over the payment system in the country and support competition in the digital era.
Potential Triggers for Issuing Digital Shekel
The Bank of Israel Steering Committee on the Potential Issuance of a Digital Shekel has outlined several scenarios that could lead to the issuance of a CBDC, named “SHAKED.” One of the key factors is the increased adoption of stablecoins, which the central bank believes could impair the payment system and harm monetary transmission if not pegged to the shekel.
The committee noted that although there are no signs of significant stablecoin adoption in Israel at the moment, payment habits could change rapidly if a major private sector entity were to issue a stablecoin. To prevent private companies from taking over the digital payments system, the central bank may opt to issue a CBDC.
Cash Use Decline May Also Drive CBDC Development
Another factor that could push the Bank of Israel towards issuing a CBDC is the decline in the use of cash. The committee observed that cash is still used in a significant portion of consumer transactions in the country. However, as the public’s payment habits shift, the central bank seeks to maintain control and prevent private entities from dominating the payment landscape. A CBDC could be the solution to maintaining this control.
Influence of US and EU CBDCs on Israel’s Decision
The Bank of Israel has acknowledged that the issuance of CBDCs by the United States or the European Union would impact their decision to deploy a digital shekel. This move demonstrates Israel’s willingness to align with major global economies in terms of cryptocurrency regulation and maintain its position as a competitive and innovative financial market.
Lessons from Other Countries
As Israel explores the possibility of a CBDC, it can learn from the experiences of other countries that have already embarked on similar journeys. For instance, China has been testing its digital yuan in several cities, while countries like Sweden, the United Kingdom, and Japan are also researching and testing their own CBDCs. By examining these case studies, Israel can develop a comprehensive strategy to ensure a successful CBDC implementation.
Concerns Over Crypto Regulation in Israel
Despite the central bank’s exploration of CBDCs, some industry executives have expressed concern over the Israel Securities Authority’s (ISA) proposal to classify crypto assets as securities. Critics argue that this move could stifle growth in the industry and limit the potential benefits of digital currencies in the country.
In conclusion, the Bank of Israel is carefully monitoring the global and local landscape regarding stablecoin adoption, cash use, and the issuance of CBDCs by other nations. As it prepares an action plan for the potential deployment of a digital shekel, the central bank aims to protect its monetary system and ensure fair competition in the digital era, while also remaining aware of potential regulatory hurdles that may impact the growth of the industry.
