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Bank of Israel weighs options for launching CBDC

The Bank of Israel (BoI) Steering Committee on the Potential Issuance of a Digital Shekel has listed possible scenarios that could trigger the launch of a central bank digital currency (CBDC).

The scenarios were included in a press statement released by the Committee, noting that despite the multiple pilots conducted, the central bank has not decided to launch a digital shekel. The BoI’s position could issue a CBDC in the event of a significant decline in the use of cash in settling transactions.

Another event that could sway the mind of the banking regulator is the “significant penetration of stablecoins” in Israel. The Committee’s report notes that since the rise of stablecoin adoption could adversely affect Israel’s financial system, it will be in the best interest of the central bank to launch a digital shekel.

A seismic shift in payment technology has the potential to justify the launch of a CBDC, with the BoI keen on making the payments ecosystem in line with current trends. The report notes that the extent of competition in the industry forms part of the conditions that could influence the central bank’s decision.

“Continued concentration in some segments of the domestic payments system due to the dominance of a small number of participants, incomplete competition in the deposits market, and relatively high entry barriers may justify the issuance of the central bank’s digital currency in order to support competition,” read the bank.

Israel’s central bank keeps an eye on global powers like the U.S. and the European Union, saying that their decision to launch a CBDC could influence the creation of a digital shekel. The European Central Bank (ECB) says the launch date for a digital euro is 2026, but plans for a digital dollar remain bleak.

The Committee’s report urged the central bank to be “prepared to advance the issuance of a digital shekel” in the event that the conditions listed support a launch. So far, Israel has been involved in CBDC trials with Norway and Sweden to explore a cross-border payment functionality for CBDCs.

Remains unsure over their launch

Despite probing the offerings of CBDCs since 2021, Israel’s central bank has continued to doubt the issuance of a digital shekel. The bank revealed in a 2022 report that a public consultation elicited polar reactions, prompting the institution to adopt a cautious approach.

However, BoI Governor Amir Yaron confirmed that the digital shekel would not adversely affect the payments system because the banking regulator will employ necessary safeguards for their launch. He added that a digital shekel was integral to Israel’s drive to “be at the forefront of economic and technological knowledge in this field.”

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: Central Bank Digital Currencies and Blockchain: The view from the Swiss National Bank

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