Global: Bank of Israel Official Advocates for Healthy CBDC Competition with Commercial Banks

Andrew Abir, Deputy Governor of the Bank of Israel, has expressed a supportive stance towards the competition between central bank digital currencies (CBDCs) and commercial banks, as revealed in a recent speech posted on the central bank’s website. Abir advocates for letting banks compete vigorously, suggesting that this dynamic could foster greater efficiency within the banking sector.

Despite ongoing efforts to intensify competition within Israel’s banking industry, Abir notes that progress has been mixed. While the Bank of Israel has been actively increasing interest rates to tackle inflation, commercial banks have been slower to offer higher rates on deposits compared to the rates they charge on credit. Abir commented on the situation, stating, “We still have a long way to go.”

Highlighting a common sentiment, Abir remarked, “In many countries, including Israel, commercial banks are often not very popular among the public. In Israel, part of this dissatisfaction stems from an urgent need for increased competition in certain banking segments.”

The proposed digital shekel, which is still in the development phase, is designed to potentially bear interest. Abir confidently stated that the digital shekel would likely garner significant public trust and support, emphasizing the transparency of its backing: “The digital shekel will not be developed by an anonymous figure like Satoshi Nakamoto. It will be clear who is behind it—the Bank of Israel, the same institution that backs the physical cash trusted by everyone.”

Abir further explained that introducing a digital shekel could enhance the utility of central bank money, particularly in digital transactions, reversing the declining trend caused by private sector technological innovations.

Additionally, he suggested that simply having the option to hold digital shekels might prompt commercial banks to offer better interest rates on deposits. This would not only benefit consumers but also provide the central bank with another tool to effectively manage the transmission of its interest rate policies.

Abir’s comments reflect a broader consideration within the Bank of Israel about the potential impacts and benefits of a CBDC in enhancing the financial system’s efficiency and responsiveness to monetary policy.