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Will the Bank of Israel launch a Digital Shekel? CBDC Project Manager says digital currencies can fight 'black economy' and tax evasion, compete with bank money - Yoav Soffer
(Kitco News) - Over 100 countries are exploring Central Bank Digital Currencies or CBDCs, money that is denominated in fiat currency in an electronic form via tokens on the Blockchain. The Bank of Israel has been looking into CBDCs since as early as 2017, but has yet to decide if it will indeed launch its version, expected to be called the Digital Shekel.
Israel's central bank is tackling various concerns including lack of privacy and anonymity and potential for government over-reach. The Bank of Israel's CBDC Project Manager, Yoav Soffer, contends that under the right conditions, the Digital Shekel could "allow for more freedom".
"I want to think that Central Bank Digital Currencies will allow for more freedom for people," he said. "[It is in] the public interest to fight the illicit black economy and tax evasion."
"I am lucky to be born, raised, and live in a democratic country," Soffer continued. "We have an elected parliament, and the governor of the central bank is appointed by the President. Call me naive, but I believe in our institutions, and in the fact that we will always be operating in the best public interest."
He added that CBDCs can also create more competition to the digital money that banks and financial institutions issue.
The Bank for International Settlement (BIS) defines a CBDC as a purely digital banknote that could be used by individuals to pay businesses, shops or each other (called a "retail CBDC"), or between financial institutions to settle trades in financial markets (called a "wholesale CBDC").
CBDCs are intended to be used for day-to-day transactions, which are registered on a blockchain. Critics allege that the governments could use CBDCs to monitor people's spending habits, limit spending on certain items, and even cut off political dissidents' ability to transact.
Soffer said that Israel's CBDC policy would be in the "public interest" and subject to that country's democratic processes.
"I believe in our institutions and the fact that we will always be operating in the best public interest," he said. "This is such a significant reform that… it would probably not be the case that the central bank would do it on its own… we'll probably look for both governmental and parliamentary support for [CBDCs]."
Soffer spoke with Michelle Makori, Lead Anchor and Editor-in-Chief for Kitco News.
Why CBDCs?
The justifications for CBDCs include increased competition, innovation, and better cross-border payments, said Soffer.
"If cash disappears, it may be the case that the [commercial] banks… or maybe even future stablecoins may conquer the scene and get us towards a winner-take-all situation," he explained. "So we need to have the central bank in the payment game also, in the future, just as another alternative."
Soffer said that CBDCs would make it possible to link transactions and data to a person's wallet, and could make "micro-transactions" possible for smaller items.
The Bank of Israel is also coordinating with Norway, Sweden and the Bank of International Settlements on Project Icebreaker, an initiative to improve international retail and remittance payments.
"If we turn out successful, we will hopefully prove that one single hub will be able to actually connect all of the CBDC systems," he said. "Currently, in Icebreaker, each central bank is writing the smart contract that would lock the money."
Project Icebreaker is intended to make cross-border payments faster, cheaper, and more secure, "without any counterparty risk or credit risk to the people at the ends of the transactions," said Soffer.
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CBDCs and Freedom
In response to the Freedom Convoy protests, which involved truckers demonstrating against Canadian vaccine mandates, the Canadian government invoked martial law and froze the bank accounts of participants and those who donated to the protests.
Some analysts have suggested that CBDCs could make performing such asset freezes or seizures much easier.
"I am not a technical person, so I am not able to answer [whether it] would it be easier for the government to [seize accounts] with the CBDC or without the CBDC," said Soffer. "I am a policymaker, and I can tell you that from my understanding of how we make policy, we would not make policy that has not been legislated and which would not be in the general public interest."
To find out what factors the Bank of Israel is considering ahead of launching its CBDC watch the video above
Follow Michelle Makori on Twitter: @MichelleMakori
Follow Kitco News on Twitter: @KitcoNewsNOW
