Business 9 November 2018

Ed Drake

‘Not recommended’: Bank of Israel publishes report on central bank crypto

The Bank of Israel (BOI) has published its findings following an investigation into the feasibility of issuing digital currency, and whether blockchain technology should be integrated into central payment systems.

After devoting a team of researchers to establishing whether the bank should move towards a digital currency of its own, the findings have come back negative, with the bank advised to continue to study and monitor cryptocurrency and blockchain technologies before committing to a state-backed token.

The central bank, a lynchpin of the Israeli financial system, is one of several central banks worldwide to be actively considering digital currencies, and the merits of launching a state-backed digital currency that could ultimately rival or replace cash denominated in local currency.

However, while researchers identified several key benefits, they concluded the technology was still too premature.

According to a statement issued by BOI, the conditions in Israel are not yet amenable to a central bank digital currencies (CBDC). It noted, “The team’s work shows that there is currently no uniform specification for central bank digital currencies. Its accessibility (to the entire public or only to financial institutions), the method of issuance (balanced-based or token-based), the extent of anonymity in its use, and whether it will bear interest, can all be determined.”

The BOI document presented the possible objectives of issuing a CBDC, which include making payments more efficient and supporting the existing payments system to possibly improve redundancy, as well as “maintaining the public’s access to the central bank’s liability, in the event that the use of cash declines significantly as is happening in Sweden.”

However, the bank pointed out that “this issue is not relevant to Israel at this time.”

The BOI said that while the currency may eventually be used as an additional monetary tool, that wouldn’t be the main objective behind its issue in the near term.

“Under certain specifications, and particularly if it bears interest, the e-shekel can be an additional monetary tool, but that is not a main objective of issuing it,” according to the bank.

The development comes at a time of increasing interest in cryptocurrencies from central banks vying to integrate blockchain technology into their domestic financial system.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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