Emphasizing that a decision has not yet been made, a Bank of Israel committee announced Monday a series of scenarios that could lead to the issuance of a digital shekel.
The group, bearing the cumbersome name of the Bank of Israel Steering Committee on the Potential Issuance of a Digital Shekel, said in a news release that the following factors would augur in the direction of issuing the digital currency:
Other countries’ issuance of central bank digital currencies (CBDCs): In particular, the Bank of Israel group noted that CBDCs by the United States, the European Union, or “a significant number of other developed countries” could prompt the unveiling of the digital shekel.
This threshold will be met. The Atlantic Council, an American think tank, is tracking progress toward CBDC issuance across 119 countries representing more than 95% of the world’s gross domestic progress.
A decline in the “legitimate” use of cash in Israel: The push toward cashless payments is on in Israel, which last year decreed that any purchase above 6,000 shekels (roughly $1,700 U.S.) not be made with cash. Israel’s Tax Authority cast the move as a strike against organized crime, money laundering, and tax non-compliance.
“Significant penetration” of stablecoins or other private payment methods. Incursions, such as a stablecoin not pegged to the shekel, could impede the country’s monetary system, the release noted. A digital shekel would be fairly interpreted as a hedge against that.
“The extent of competition in the domestic payment system.” The issuance of the CBDC, the release said, would “support competition in the payments system and in the financial system in the digital era.”
Technological developments. A direct quote from the release: “It may turn out in the future that there would be significant justification for issuing a digital shekel, since it would be able to serve as an efficient and secure platform for advanced technological use cases.”
One needn’t be a cynic or a visionary to conclude that the committee is setting the stage for issuance.
Israel’s History with CBDC Development
The Bank of Israel’s consideration of issuing a CBDC began in late 2017, according to Reuters, but the team studying the matter said a year later that it recommended against issuance “in the near future.”
By late 2021, however, the forward movement had resumed, with Amir Yaron, Governor of the Bank of Israel, telling a conference that the country was “committed to being at the forefront of economic and technological knowledge in this field.”
The General Momentum Toward CBDCs
A recent PaymentsJournal article detailed the pronounced swing toward central bank digital currencies. “There is no reason why we, as a central bank, should not be exploring why digital cash can be of good use,” Christine Lagarde, the head of the European Central Bank, told colleagues in Switzerland in March.
Indeed, the arguments for CBDCs are prolific, including better liquidity, easier cross-border payments, lowered risk of fraud and money laundering, and financial inclusion for those who don’t have easy access to banking accounts.
According to the Atlantic Council’s tracker, pilot CBDC programs have been launched in Saudi Arabia, the United Arab Emirates, France, Singapore, Tunisia, Canada, Ghana, Nigeria, India, China, and the Eastern Caribbean Economic and Currency Union. Proofs of concept have been presented in more than a dozen more countries. Dozens of others, including the United States, remain in the research phase.
