By Steven Scheer
JERUSALEM (Reuters) – The Bank of Israel (BOI) remains committed to plans for a digital currency to improve Israel’s payments system and promote innovation, but it is unlikely to launch before other advanced economies.
“We are all waiting for the first Western central bank to pull the trigger, and that will almost certainly be the ECB. And then you might see a wave of countries getting on with it,” said Andrew Abir, deputy governor of the Bank of Israel. Reuters.
As of March, 134 countries, representing 98% of the global economy, were exploring digital versions of their currencies, which would eventually replace cash. Some countries, such as China, are in advanced stages of pilot programs, while the US Federal Reserve is lagging behind.
The BOI first began researching a possible central bank digital currency (CBDC) in 2017 as a way to create a more efficient payment system and ramped up its research and preparation in November 2020.
The bank, along with its counterparts from Hong Kong, Sweden and Norway, as well as the Bank for International Settlements, have been experimenting with a digital shekel. It has invited both fintech and traditional financial companies to participate in its project, known as the “Digital Shekel Challenge”, to demonstrate possible use cases.
Despite planning and an increasingly digital global economy, the BOI says it is still unsure it will eventually launch a digital shekel. The experiment is considered an ‘action plan’ to be ready when the bank deems it appropriate and necessary.
Similarly, the ECB has said it is likely, but not inevitable, that a digital euro will be introduced in Europe, which relies on cross-border payment services from elsewhere, notably US giants Visa (NYSE:) and Mastercard (NYSE: :). .
“The big question is whether the public will adopt a digital currency,” Abir said, adding that the BOI is conducting a behavioral study on the subject.
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“There’s a big jump from a study to convincing people to use it. You have to have a good set of use cases.”
Abir wants to see an eventual digital currency that pays interest, creating competition with bank deposits and encouraging the public to hold them.
The Israeli banking system is highly concentrated, with two major banks dominating more than 60% of the market.
“The main incentive for us is to create a level playing field for payment providers and allow them to compete with the banks,” he said.
“An advantage of a CBDC is that the payment provider does not hold your money in custody, so you have no credit exposure to that company. This allows for a lower oversight and capital requirement than a traditional payment provider holding your money. , even for brief moments.”
A digital shekel, Abir said, will allow the public to pay with the central bank’s money “anywhere and in any transaction we want.”
Should the BOI decide to launch a digital shekel, it will most likely need approval from the Ministries of Finance and Justice.
“It will take some time before it will enter all our lives if we decide to implement it,” Abir said. “But it has the potential to be the next revolution in payment systems.”
