Israel’s central bank, the Bank of Israel, has unveiled plans to introduce a new digital shekel central bank digital currency (CBDC) with the option of bearing interest. Here are the key details from the announcement made on March 11:
The digital shekel CBDC will be implemented using a two-tier model, allowing for instant, 24/7 payments and multipayment support.
It will support offline use and impose limitations on balances to ensure efficient operation.
The architecture of the CBDC system will prioritize user privacy, with the central bank not having access to personally identifiable information about end users’ balances and transactions.
However, the central bank will retain control over the necessary information for system operation and monitoring.
Commercial banks in Israel currently offer interest rates of 4.86% on fiat shekel deposits and savings. The digital shekel CBDC will provide an option for interest-bearing accounts, allowing banks to hold CBDC as part of their short-term liquidity buffer.
The data structure of the CBDC system will enable the enforcement of holding restrictions and the application of interest, ensuring compliance with regulatory requirements.
Israel has been considering the issuance of a digital shekel since 2021, but concrete pilot tests have not yet been initiated.
The Bank of Israel emphasized that decisions regarding the digital shekel system are still under review, considering the interdependence of various components and regulatory considerations.
The central bank previously indicated that the issuance of a shekel CBDC could be influenced by the adoption of stablecoins in Israel. As of now, there are no significant signs of stablecoin adoption for payments in the country.
Israel’s plans for a digital shekel CBDC demonstrate a proactive approach to exploring digital currency solutions while ensuring regulatory compliance and addressing privacy concerns. As the development progresses, further details on pilot tests and implementation timelines are expected to emerge.
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