Bank of Israel Unveils Digital Shekel CBDC Pilot for Payments
The Bank of Israel unveiled the CBDC experiment inspired by Project Rosalind, which was executed by the BIS Innovation Hub on digital shekel.
Israel seeks to expedite the development of in-house central bank digital currency (CBDC). The digital shekel project will feature multiple service providers as the Bank of Israel seeks co-development of the advanced digital payments ecosystem around the CBDC.
A quick translation of the announcement by the Bank of Israel indicated that the central bank is unveiling an action plan towards digital shekel issuance. It added that the Digital Shekel Challenge is experimenting with the initiative whose inspiration is the Project Rosalind that the BIS Innovation Hub executed.
The Project Rosalind involves a jointly executed experiment that features the Bank of England (BoE) and Bank for International Settlements (BIS). The initiative aims to develop prototypes for application programming interfaces (APIs).
Digital Shekel to Bridge Gap in Web3 sector
The Digital Shekel Challenge will feature a sandbox environment that the Bank of Israel will offer integrated into the layer of APIs. The participants will contest building systems for the real-time CBDC payment targeting the general public.
Materkey Venture Capital managing partner Shauli Rejwan explained the digital shekel initiative. The executive at the Tel Aviv-headquartered venture capital firm detailed that the CBDC program comprises three phases.
The initial phase features an application blend with presentations for the CBDC. The second phase involves assessing the new network for the projects involved. The final phase is presenting to the judges a panel of individuals previously involved in major crypto events.
Rejwan considers the initiative has the potential to bridge the disparity between the Web3 sector and the Israeli government. However, the project does not consider decentralized finance (DeFi), zero-knowledge (zK), and permissionless solutions.
Israel had invited private enterprises, public entities, and academic institutions to participate actively in the digital shekel experiment.
The central bank clarified that the priority is accorded to the original and innovative traits within the payments space. The project will accommodate improvements to present applications and split with the newly unveiled applications.
Bank of Israel Considers CBDC to Benefit Economy
The Bank of Israel clarified that while the CBDCs are tailored for universal use cases, domestic participants in the experiment are accommodated to build solutions tailored for the unique niches.
The Bank of Israel, on April 16, via deputy governor Andrew Abir, indicated that the CBDC competition with the banks benefits the country’s economy.
Abir indicated that developing the digital shekel will gain support from the public. The deputy governor ruled out the digital shekel development by the anonymous party as Satoshi Nakamoto is credited with Bitcoin.
Abir vowed to disclose the developer responsible for the digital shekel project. He promised to portray the clarity that the Bank of Israel does behind the country’s cash that citizens know and trust.
Abir indicated that the digital shekel is set to benefit the Bank of Israel. The option of holding CBDCs can incentivize banks to pay higher interest.
A recently published consultation report on May 11 affirmed the deputy governor’s thoughts on the public supporting the CBDC development.
Abir cited that the responses to the public consultation signal widespread support for executing continued research on its implications for payments, monetary stability, the financial market, and tech and legal issues.
Risks in CBDC Project
The CBDC project has seen the respondents question privacy breaches in the digital shekel. Such aligns with the concerns aired around the world, given that CBDCs are a relatively new initiative that was first unveiled in 2020 by the Bahamas.
The long-term impact is not evident, though various stakeholders warn that CBDCs could undermine the existence of banks.
The central banks are designing CBDCs to be accessible only via financial institutions to sustain intermediation. Doing so is considered prudent to avert the usage of digital currencies in preference to bank deposits.
Other stakeholders have alleged that CBDCs’ existence aggravates the risk of bank runs. The risk is avoidable if the banking sector maintains health, though central banks are imposing regulatory caps on the digital currency holdings.
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