Global: Israel’s central bank says CBDC could be issued if stablecoin use increases

The Bank of Israel says it’s preparing an action plan for the potential issuance of a central bank digital currency, though a formal decision has yet to be made.

On April 17, the Bank of Israel Steering Committee on the Potential Issuance of a Digital Shekel outlined possible scenarios for the development and deployment of a CBDC, a digital shekel called “SHAKED.”

It provided several scenarios that could lead to the issuance of a digital shekel, among them was increased stablecoin activity.

Increased adoption of stablecoins may “impair the payment system,” it noted, before adding that stablecoins not pegged to the shekel “might also harm the monetary transmission.”

“At this point, there are no signs of substantial adoption of stablecoins as means of payment in Israel. However, paying habits of the public might change rapidly, for instance in a scenario of issuance by a major private sector entity.”

Another potential driver of CBDC development is a decline in the use of cash in Israel, the committee said. While cash is still used in a significant portion of consumer transactions in the country, a change in the public’s payment habits may result in a shift away from using central bank fiat, according to the committee.

The Bank of Israel does not want this scenario or private entities controlling payments so a CBDC could be the solution.

It also said that consideration for the issuance of a CBDC would be made to “support competition in the payments system and in the financial system in the digital era.”

If the United States or the European Union issues a CBDC, then this would also influence Israel’s decision to deploy one, it stated.

The Bank of Israel Steering Committee concluded that it was monitoring the situation in preparation for advancing the digital shekel.

Israel appears to be shadowing the U.S. in terms of crypto regulation. Earlier this year, the country’s securities regulator proposed legislation that would classify crypto assets as securities in the country.

Industry executives have expressed concern claiming it could “kill the industry.”