(Kitco News) – It appears that even wars and regional conflicts cannot stop the progress towards a world with central bank digital currencies (CBDCs), as the Bank of Israel has announced they will support a new Israeli shekel that has the option of bearing interest.
The Israeli central bank released a report on its plans for the digital shekel on Monday, which outlined that the CBDC will be implemented in a two-tier model, with instant, 24/7 payments, multipayment support, offline use, limitations on balances, and an option for the CBDC to become interest-bearing.
Commercial banks in Israel currently offer 4.86% interest on customers’ fiat shekel deposits and savings, and under the proposed plan, banks would be able to hold the shekel CBDC as part of their short-term liquidity buffer, which would be non-interest bearing.
This falls in line with the fiat balances held by banks as part of their reserve requirement against the public’s current accounts and short-term deposits, which do not bear interest and include the commercial banks’ demand deposits at the Bank of Israel and the cash held in their vaults.
“Digital shekels represent a direct commitment of the central bank and, therefore, will likely be included in the liquidity buffer,” the report said. “Accordingly, the liquidity/financial impact of the requirement that commercial banks hold digital shekels to support the indirect model is not expected to incur additional costs relative to the other two models.”
The Bank of Israel also addressed concerns related to privacy, saying that most user information and transaction history will be hidden from the central bank.
“In the area of privacy, the architecture will allow the central bank, as the system administrator, to define the types of information required for the operation, control, and monitoring of the system,” the report said. “However, the central bank will not have access to personally identifiable information about end users’ balances and transactions.”
Israel has been exploring the issuance of a digital shekel since 2021 but has yet to put any concrete plans to release a CBDC to the general public.
“Given the interdependence between the various components of the digital shekel system, the decisions are not final,” the Bank of Israel said.
Russia legalizes digital ruble for foreign trade
Russia sees the release of a digital ruble as a workaround to sanctions placed on the country after it invaded Ukraine, and as such, Russian President Vladimir Putin signed a law on Monday that establishes a regulatory framework for “conducting foreign trade transactions using digital assets as a means of payment,” including the digital ruble.
While many countries have slow-walked CBDC legislation, Moscow fast-tracked its bill in late February in an apparent bid to help domestic companies use digital tokens and CBDCs to facilitate cross-border transactions outside of the SWIFT system.
The State Duma’s Committee on the Financial Markets approved key amendments to the legislation on February 21. After passing its second and third readings in the Duma, the bill was hastily moved to the upper house, the Federation Council, on March 6.
According to Russian media outlet RBC, the law will come into force “from the date of official publication, with the exception of a number of provisions that will come into force later.”
Russian law currently recognizes a large number of digital assets as digital financial assets (DFAs), including digitized commodities and securities, digital rights, and digitized monetary claims. Based on the text of the bill signed by Putin, the central bank of Russia now has the authority to regulate all transactions made using these assets.
DFA issuers must now provide the Bank of Russia with information about the recipients of these assets, and firms that use DFAs and CBDCs in payments will be required to log all transactions on a newly created information system.
According to data provided by the Atlantic Council, 134 countries and currency unions, representing 98% of global GDP, are currently exploring the creation of a CBDC, with 19 of the Group of 20 (G20) countries in the advanced stages of CBDC development. There are 36 ongoing CBDC pilots, including the digital euro.
Since Russia’s invasion of Ukraine and the resulting G7 sanctions response, wholesale CBDC developments have doubled.
