Israel’s apex monetary authority, the Bank of Israel, has listed several conditions that can speed up its decision to launch the digital shekel (SHAKED), the country’s central bank digital currency (CBDC). Issuance of CBDCs by other developed countries, especially the United States and the European Union (EU) tops the list, according to a statement released on Tuesday by the central bank’s Steering Committee on the Potential Issuance of a Digital Shekel.
Israel Gives Conditions for CBDC Launch
Other conditions listed by the Committee, which was created two years ago, include decline in the legitimate use of cash and its acceptance in Israel, high adoption of stablecoins and other private means of payment, continued segmental focus in the domestic payment system and advancement in technology.
Although Israel started mulling over the launch of a CBDC as early as 2017, the Committee noted that the bank has not yet reached a decision on whether to launch the digital shekel. It added that the apex monetary authority is still preparing an action plan for the potential issuance of SHAKED.
On the first condition, the financial regulator explained that a decision by the United States, the European Union or a significant number of other developed economies can spur its own decision. On the condition related to decreased acceptance of cash, the authority noted that while cash remains a significant leger tender for consumer transactions in the country, "it is highly probable that the use of cash as a means of payment will decline in the future."
Furthermore, on the condition tied to stablecoin, the monetary authority noted that there is currently no sign of “substantial adoption” of stablecoins as a means of payment in the country. However, it warned that significant adoption of this type of currency could impair the payment system.
“A stablecoin that isn’t pegged to the shekel might also harm the monetary transmission,” it added.
More Details on the Conditions
On the condition tied to the Israeli domestic payment system, the Committee noted that it could recommend the launch of SHAKED to boost competition in the country’s payment and financial system. The regulator explained that the country's deposit market is dominated by a small number of participants due to high entry barriers and leading other firms to concentrate majorly on other segments.
On the last point, the Committee noted that it will be willing to recommend a digital shekel if “it would be able to serve as an efficient and secure platform for advanced technological use cases.”
In other developments, the Israel Securities Authority since January has been working towards amending the country’s securities law to fit in cryptocurrencies. Moreover, in late 2022, the Tel Aviv Stock Exchange also disclosed plans to launch blockchain-based government bonds in partnership with the Israeli Ministry of Finance.
Across the world, the race towards CBDC presses on. In the Asian region, the United Arab Emirates recently launched its CBDC strategy. On the other hand, in Europe, the European Central Bank (ECB) recently tapped five big firms including Amazon for its digital euro payment prototyping exercise. On top of that, up to 30 Spanish banks also recently partnered to carry out new proof-of-concept (PoC) trials to measure the impact of issuing a digital euro by the ECB.
In the United States, the Federal Reserve Bank of New York recently held a three-month digital dollar PoC project in partnership with some US banking giants. On the contrary, Andrew Bailey, the Bank of England Governor recently raised questions about the need for a CBDC.
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