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(Kitco News) - As countries around the world progress towards the adoption of central bank digital currencies (CBDCs), the steering committee for the Bank of Israel (BOI) has released a new statement outlining the potential scenarios that would lead to the creation of a digital shekel.
“The Bank of Israel is preparing an action plan for the potential issuance of a digital shekel (SHAKED), despite the fact that a decision has not yet been made as to whether the Bank intends on doing so,” the announcement said. The document went on to note some of the variables that “may have an effect on the Steering committee’s recommendation.”
One of the main motivations for the BOI to launch a digital shekel would be the launch of a CBDC by other countries such as the U.S., European Union, or by a “significant number of other developed countries,” the BOI said. “The probability of such a development in the next few years is significant.”
Another primary motivator would be a “decline in the legitimate use of cash and its acceptance in transactions in Israel.”
Data collected by the BOI shows that while cash is still the primary payment method for a “significant portion” of consumer transactions, “it is highly probable that the use of cash as a means of payment will decline in the future, with the expanding adoption of payment applications and of electronic means of payment in general.”
The BOI suggested that the public’s payment habits could change more rapidly than anticipated in the coming years, which could result in a rapid decline in the public’s ability to make transactions using central bank money.
“The public’s ability to use central bank money is important both in maintaining the public’s trust in other means of payment – since it can always convert those into central bank money – and in order to maintain individuals’ and businesses’ ability to make transactions while minimizing the intervention of private entities,” the bank said. “We must therefore monitor developments in the use of cash as a means of payment, and examine the extent to which the ability to make (legitimate) transactions using cash is maintained.”
The report also highlighted the growth that stablecoins and other private forms of payment have been able to achieve in some jurisdictions, warning that their broader use “might impair the payment system.” The BOI suggested that “A stablecoin that isn’t pegged to the shekel might also harm the monetary transmission.”
While there hasn’t been a significant level of stablecoin adoption in Israel thus far, the central bank warned that “paying habits of the public might change rapidly, for instance in a scenario of an issuance by a major private sector entity.”
Competition in the domestic payment system was also noted as an area of concern. “Continued concentration in some segments of the domestic payments system due to the dominance of a small number of participants, incomplete competition in the deposits market, and relatively high entry barriers may justify the issuance of central bank’s digital currency in order to support competition in the payments system and in the financial system in the digital era,” the BOI wrote.
The final scenario highlighted by the BOI would be significant technological developments in the payments system that would justify the issuance of a digital shekel, “since it would be able to serve as an efficient and secure platform for advanced technological use cases.”
“The Bank of Israel must be prepared to advance the issuance of a digital shekel, if the variables listed above support it,” the BOI concluded. “The Steering Committee will therefore monitor the developments in the aforementioned aspects on a periodic basis.”
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| Israel to test new blockchain-based digital bond system |
Israel has taken a measured, methodical approach to exploring the integration of blockchain technology, digital assets and a CBDC thus far.
In October, the Israeli government unveiled project ‘Eden,’ which was designed to test a new blockchain-based digital bond system in partnership with the Tel Aviv Stock Exchange (TASE) as part of its efforts to modernize the country’s financial markets, optimize the process of issuing national bonds and help reduce the associated overhead costs.
In February, the Tel Aviv Stock Exchange, which operates Israel’s only public equity trading platform, announced that it was expanding its crypto trading services by allowing customers of its nonbanking members (NBM) to access its crypto desk. The exchange made the move to help advance Israeli capital markets in line with international standards, increase the ability of NBMs to expand their areas of activity and enable their customers to trade in cryptocurrency.
