The issuance of a central bank digital currency (CBDC) in Israel will depend on the popularity of stablecoins as a means of payment, the issuance of digital currencies by other countries, and several other factors.
The Bank of Israel Steering Committee (BoI) prepared a detailed action plan for the potential issuance of the digital shekel (SHAKED). The document includes several important factors with a significant impact on the government’s decision.
Among the conditions that could stimulate the issuance of the BoI’s digital currency are:
- The issuance of CBDCs by other countries. The release of a state-owned digital currency in the U.S. or the European Union could be an “important factor” for Israel.
- The use of cash. If the use of cash as a means of payment in the country declines, the Bank of Israel will insist on CBDC issuance. The digital shekel can expand the adoption of payment apps and electronic means of payment in general.
- The popularity of stablecoins. The widespread adoption of stablecoins “might impair the payment system” in Israel. If stablecoins not pegged to the shekel and issued by a “major private sector entity” become widely popular among the public, the bank will be forced to limit their introduction and issue an alternative in the form of CBDC.
- The level of competition among domestic payment system providers. CBDC issuance may be stimulated by further increasing the level of dominance of several participants in the payments market in Israel, as the digital shekel will be able to “support competition” in the country’s payment system.
- Technological developments. The development of innovative technologies in the global digital money market may in the future give the Bank of Israel a “significant justification” for issuing CBDCs. The digital shekel would then be developed as an “efficient and secure platform for advanced technological use cases.”
Currently, the Steering Committee isn’t ready to make a formal decision on the possibility of CBDC issuance in Israel. However, the BoI should be ready if necessary. The Steering Committee will continue to monitor developments in the aforementioned aspects.
Representatives of the Bank of Israel first talked about developing a digital shekel project back in 2017, but the project was frozen until 2021. During 2022, the BoI was actively involved in testing the use of CBDCs for cross-border payments.
