The Bank of Israel is mulling over several options to increase adoption levels for its central bank digital currency (CBDC) pending the decision for future rollout.
The central bank disclosed its plans on Wednesday, noting that the widespread use of the digital shekel will offer myriad benefits for the financial ecosystem. The central bank posited a double-pronged approach to increase adoption, hinging on users and merchants.
On the users’ side, the central bank notes that the state will allow citizens to rely on the digital shekel to pay taxes and fines. Another strategy to trigger growth for the digital shekel is its deployment in the payment of salaries with the central bank, noting that the plan will confer legitimacy on the offering.
The central bank hopes to create a “network effect” through an intuitive digital shekel platform by ensuring round-the-clock availability and immediacy. Israel’s banking regulator reeled out use cases in micropayments, programmable payments, the Internet of Things (IoT), metaverse, and decentralized finance designed to foster broader adoption.
“The broad use of a digital shekel as a means of payment between individuals (P2P) would contribute to the creation of a network effect,” read the report. “This network effect will lead to positive external effects in the use of a digital shekel, such that its use by a greater number of users would on its own lead to broader distribution among the public.”
On the merchant side, the central bank plans to reduce the costs of CBDC usage to lower than available alternatives and streamline the payment process by eliminating the manual filing of taxes.
One area the Bank of Israel is keen on exploring is cross-border payments, noting that delays and inefficiencies plague existing processes. With considerable experience in cross-border transactions under its belt, the banking regulator divulged plans to allow merchants to settle international transactions via CBDCs.
The Bank of Israel participated in Project Icebreaker, a joint study by the Bank for International Settlements (BIS), Sweden, and Norway into cross-border CBDCs.
Adoption issues plague CBDCs globally
Central banks face the arduous task of convincing citizens to pivot to CBDCs amid stiff competition from digital currencies. The People’s Bank of China (PBoC) employed several strategies to drive adoption, including $20 million worth of subsidies and integrating many features into its digital yuan wallet.
Nigeria’s CBDC journey has hit several roadblocks, including dismal adoption rates, which the central bank governor blamed on commercial banks. Meanwhile, Jamaica has rolled out three initiatives in the Caribbean to encourage the use of its JAM-DEX after over a year of faltering adoption figures.
Watch: Blockchain provides perfect foundation for CBDC
New to blockchain? Check out CoinGeek’s Blockchain for Beginners section, the ultimate resource guide to learn more about blockchain technology.