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Israel is accelerating the development of its central bank digital currency (CBDC), known as the digital shekel. The Bank of Israel (BoI) aims to collaborate with various service providers to create a sophisticated digital payments ecosystem centered around the digital shekel. According to a translated announcement from the central bank:
As part of the action plan for the possible issuance of the digital shekel, the Bank of Israel is planning the ‘Digital Shekel Challenge’ — an experiment inspired by the ‘Project Rosalind’ carried out by the BIS Innovation Hub.”
Project Rosalind is a collaborative effort between the Bank for International Settlements (BIS) and the Bank of England to develop prototypes for an application programming interface (API).
In the Digital Shekel Challenge, the BoI will provide a sandbox environment with an API layer. Participants will compete to develop real-time CBDC payment systems for public use.
“The program consists of three phases: application and presentations, access to the new network for selected projects, and a final presentation to judges, some of whom have spoken at recent crypto events.”
Rejwan believes this initiative could bridge the gap between the Web3 industry and government, despite decentralized finance, zero-knowledge, and permissionless solutions not yet being considered.
Israel has invited entities from the private, public, and academic sectors to participate in the experiment. The central bank added:
“Priority will be given to uses with original and innovative characteristics in the payments world, whether they are improvements to existing applications or completely new applications.”
While CBDCs are generally designed for universal use cases, participants in Israel’s CBDC experiment can also create solutions for unique niches and scenarios.
On April 16, BoI Deputy Governor Andrew Abir expressed that competition between CBDCs and banks would benefit the nation’s economy. He believes the digital shekel will gain public support.
“The digital shekel will not be developed by some anonymous Satoshi Nakamoto. Everyone will know who is behind the digital shekel and who is responsible for it — […] the same Bank of Israel that stands behind the cash we all know and trust.”
Abir also mentioned that the option to hold digital shekels could encourage banks to offer higher interest rates.
A public consultation report released on May 11 confirmed Abir’s views on public support for CBDC development.
“All of the responses to the public consultation indicate support for continued research regarding the various implications on the payments market, financial and monetary stability, legal and technological issues, and more.”
However, respondents unanimously raised concerns about potential privacy breaches with the implementation of a CBDC.
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