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The Bank of Israel is adopting a cautious approach to the introduction of a central bank digital currency (CBDC), opting to wait until another advanced economy launches its own CBDC before proceeding.
Deputy Governor Andrew Abir indicated in an interview with Reuters that the European Central Bank (ECB) might be the first to introduce a CBDC, potentially triggering a wave of similar actions by other countries. “Once the ECB moves forward, you may see a rush of countries following suit,” Abir noted.
The Bank of Israel has been exploring the possibility of a CBDC since 2017, intensifying its research and preparations in November 2020. It has been actively experimenting with a digital shekel in collaboration with central banks in Hong Kong, Sweden, and Norway, as well as the Bank for International Settlements.
To further its research, the Bank of Israel launched the “Digital Shekel Challenge,” inviting both FinTech and traditional financial companies to propose and demonstrate potential use cases for the digital shekel.
However, Abir emphasized that the Bank of Israel might ultimately decide not to launch a digital shekel. The ongoing projects are designed to ensure readiness should the decision be made to proceed.
Similarly, the ECB has stated that the creation of a digital euro is not a foregone conclusion.
As of March, 134 countries were exploring CBDCs, with China and a few others making significant progress in their pilot programs.
Abir highlighted that the primary motivation for the Bank of Israel’s interest in a CBDC is to foster competition among payment providers. With a CBDC, payment providers wouldn’t need to hold the money, potentially lowering their supervision and capital requirements compared to traditional payment providers.
In September 2022, the Bank of Israel, along with the central banks of Sweden and Norway and the Bank for International Settlements, announced plans to explore the use of CBDCs for international retail and remittance payments.
Bank of Israel Governor Amir Yaron stated in September 2023 that while the bank sees a need to improve the country’s payment systems and is considering a CBDC, the decision to create one remains uncertain. “Whether or not we will issue a digital shekel is still an open question, as it is in most other advanced economies,” Yaron said.
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