The Bank of Israel (BOI) is committed to exploring a digital shekel to enhance the country’s payment system and encourage innovation but is unlikely to introduce it ahead of other advanced economies.
Governor Andrew Abir mentioned that Israel is waiting for a major western central bank, likely the European Central Bank (ECB), to lead the way before proceeding.
Currently, 134 countries are exploring digital versions of their currencies, with China in advanced pilot stages, while the U.S. Federal Reserve lags. The BOI started investigating a central bank digital currency (CBDC) in 2017 to create a more efficient payment system and intensified its efforts in November 2020.
The BOI is experimenting with a digital shekel alongside Hong Kong, Sweden, Norway, and the Bank for International Settlements. It has also launched the “Digital Shekel Challenge,” inviting fintech and traditional financial companies to showcase possible applications.
Despite the research and planning, the BOI is not certain about launching a digital shekel and considers its experiments as preparatory actions for future implementation when deemed necessary.
The ECB has similarly indicated that introducing a digital euro is likely but not guaranteed, depending on public adoption and cross-border payment services, primarily from U.S. giants Visa and Mastercard.
Abir emphasized the need for public acceptance of a digital currency and mentioned the BOI is conducting a behavioral study on the subject. He believes that offering interest on digital currency could create competition with bank deposits and incentivize public usage.
Israel’s banking system is highly concentrated, with two large banks controlling over 60% of the market. A digital currency could level the playing field for payment providers, allowing them to compete with banks without holding customer money, reducing credit exposure and regulatory requirements.
(Reuters)