The Bank of Israel has expressed concerns over private companies potentially taking over the nation’s digital payments system. As a result, the bank is currently developing an action plan to explore the issuance of a central bank digital currency (CBDC) – the digital shekel, referred to as “SHAKED.” Although no formal decision has been made, the Bank of Israel Steering Committee on the Potential Issuance of a Digital Shekel has outlined several scenarios that could lead to the development and deployment of a CBDC.
Growing Stablecoin Adoption and Its Impact on the Payment System
One of the primary factors driving the exploration of a CBDC is the increased adoption of stablecoins. The Steering Committee believes a rise in stablecoin activity could potentially impair the payment system. Additionally, stablecoins not pegged to the shekel might harm the monetary transmission.
There is no significant adoption of stablecoins for payments in Israel. However, the Steering Committee acknowledges that the public’s payment habits could change rapidly, mainly when a significant private sector entity issues a stablecoin.
Another potential driver for developing a CBDC is the decline in the use of cash in Israel. While cash is still widely used for consumer transactions, a shift in the public’s payment habits may result in a move away from using central bank fiat, as noted by the Steering Committee. The Bank of Israel is against the idea of private entities controlling payments, and a CBDC could offer an effective solution to this issue.
Furthermore, the Steering Committee has expressed interest in supporting competition in the payments system and in the financial system in the digital era, which could be achieved through the issuance of a CBDC.
Influence of Global CBDC Development on Israel’s Decision
The Steering Committee has indicated that the issuance of CBDCs by the United States or the European Union would influence Israel’s decision to deploy a digital shekel. As a result, the Bank of Israel is closely monitoring the global situation in preparation for advancing the digital shekel project.
Israel seems to be following in the United States’ footsteps regarding cryptocurrency regulation.
Earlier this year, the country’s securities regulator proposed legislation classifying crypto assets as securities in Israel. This proposal has raised concerns among industry executives, who argue that such regulation could potentially “kill the industry.”
Israel’s Cautious Approach to Digital Shekel Development
The Bank of Israel’s exploration of a digital shekel comes amid growing concerns surrounding stablecoin adoption and the decline in cash usage.
By considering the potential issuance of a CBDC, the bank aims to maintain control over the nation’s payment systems and support competition in the financial sector.
Israel is carefully monitoring global developments, particularly the actions of the United States and the European Union, as it continues to assess the potential advantages and challenges of launching a digital shekel.