In a speech published on the central bank’s website, Bank of Israel deputy governor Andrew Abir presented a contrarian view regarding the impact of central bank digital currency (CBDC) on commercial banks. Rather than viewing it as a threat, Abir suggested that it could spur healthy competition among banks, signaling a shift in perspective on the role of CBDCs in the banking sector.
Fostering Competition in the Banking Sector
Abir highlighted the efforts to enhance competition within the Israeli banking industry, acknowledging that despite progress, there is still room for improvement. He emphasized the need to address public discontent with the banking system, attributing some of the dissatisfaction to perceived shortcomings in competition within certain segments of the market.
Addressing concerns about public trust and support for CBDC, Abir asserted confidence in the digital shekel’s design. He emphasized transparency and accountability, asserting that the digital shekel would be developed by the Bank of Israel, a well-established institution with a proven track record. Abir suggested that this clarity of ownership would instill trust and garner public support for the digital currency.
Abir outlined potential benefits for the Bank of Israel with the introduction of the digital shekel. He highlighted the opportunity to make central bank money more accessible, particularly for digital payments, countering the declining use of central bank money due to advancements in private sector technology. Additionally, the digital shekel could serve as a tool for the central bank to influence interest rates and incentivize banks to offer higher interest rates to depositors.
Abir noted strong public support for the digital shekel among the Israeli population, indicating a favorable reception for the proposed CBDC. This positive sentiment underscores the potential for the digital shekel to gain traction and contribute positively to the Israeli financial landscape.
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