The Bank of Israel (BOI) is making strides towards implementing a digital shekel currency to modernize the country’s payments system and promote innovation. Deputy Governor Andrew Abir has expressed the bank’s commitment to this project, which has been in the works since 2017. However, the BOI is hesitant to launch the digital shekel ahead of other advanced economies, waiting for cues from the European Central Bank (ECB) and other Western central banks.
As of March, a significant number of countries, representing a large portion of the global economy, are exploring the possibility of introducing digital versions of their currencies. China is at the forefront with advanced pilot programs, while the U.S. Federal Reserve lags behind. The BOI, along with counterparts from Hong Kong, Sweden, and Norway, as well as the Bank for International Settlements, has been conducting experiments with digital currencies to improve payment systems and foster competition.
Despite the progress made by the BOI, there are still uncertainties surrounding the launch of a digital shekel. The bank views its current efforts as an action plan to be prepared when the time is right. One of the key concerns is whether the public will adopt a digital currency, as there is a significant leap from conducting studies to actual implementation. Behavioral studies are being conducted to assess public attitudes towards a digital shekel.
Deputy Governor Abir emphasizes the importance of creating incentives for the public to use a digital shekel. One of the proposed incentives is for the digital currency to pay interest, creating competition with traditional bank deposits. This move aims to level the playing field for payment providers and reduce the dominance of large banks in Israel’s financial sector. Additionally, a digital shekel would eliminate credit exposure risks associated with payment providers that hold customers’ money, leading to lower supervision and capital requirements.
If the BOI decides to launch a digital shekel, it would require approval from the finance and justice ministries. Abir acknowledges that the process of implementing a digital currency will take time and will not immediately affect all aspects of daily transactions. The goal is for the public to have the ability to use the central bank’s money for various transactions, ensuring widespread adoption and usage of the digital shekel.
Overall, while the BOI is making significant progress towards the introduction of a digital shekel, there are still several challenges and uncertainties to address. The bank’s cautious approach and focus on creating incentives and competition in the financial sector are crucial for the success of a digital currency in Israel. As the global landscape of digital currencies continues to evolve, the BOI will need to carefully navigate the implementation process to ensure a smooth transition to a digital shekel.