Andrew Abir, deputy governor of the Bank of Israel, told Reuters that Israel is waiting to make a choice about the digital shekel until the European Central Bank (ECB) says what will happen with the digital euro.
Abir stressed that the ECB’s decision-making process about a possible start of the digital euro by 2027 will have a big impact on when Israel makes its move. “The major question is whether the public will accept a digital currency,” Abir said, pointing out the difference between what researchers have thought about it and what people actually do.
Israel’s CBDC Plans Await ECB’s Digital Euro Decision
As early as 2017, Israel started to look into the idea of a central bank digital currency (CBDC). At first, they looked at global trends in digital currencies, how feasible the technology was, and how it might affect monetary policy and financial security. In 2021, the Bank of Israel stepped up its efforts by creating a task group whose sole purpose was to learn more about the development of the digital shekel.
The Bank of Israel recently started the Digital Shekel Challenge, which asks different groups to come up with uses for a possible CBDC. As part of this trial project, a technological prototype of the digital currency’s core system and API layer will be used to test it.
Abir talked about the possible benefits of a CBDC, like making it fair for payment companies. He said that a CBDC would not hold users’ funds like standard payment providers do, which would lower their risk of credit exposure and regulatory requirements. In turn, this could make payment companies compete with each other more.
Israel is still in the monitoring phase, but Abir said that the country is eager to take advantage of CBDC’s benefits while carefully checking the level of public preparation and market dynamics. The final choice on the digital shekel won’t be made until European partners give more information and Israel continues pilot testing.
