Key Takeaways
- ย The central bank had invited entities from the private, public and academic sectors to participate in the experiment.ย
- While CBDCs are built to serve universal use cases, participants in Israelโs CBDC experiment are also allowed to build solutions for unique niches and scenarios
The Bank of Israel is hoping on the central bank digital currency (CBDC) exploration bandwagon by stating it has built a technological prototype” simulating the heart of the digital shekel system.”
Drawing inspiration from Project Rosalind, a joint effort by the Bank for International Settlements (BIS) and the Bank of England, the “Digital Shekel Challenge” will provide participants with access to a sandbox environment attached to a layer of application programming interfaces (API). Within this environment, participants can develop real-time CBDC payment systems for the general public.
As per the official statement, the central bank had invited entities from the private, public and academic sectors to participate in the experiment. BoI added that priority in participation will be given to uses with original and innovative characteristics in the payments world, whether they are improvements to existing apps or completely new apps.
ย While CBDCs are built to serve universal use cases, participants in Israelโs CBDC experiment are also allowed to build solutions for unique niches and scenarios. The announcement revealed that the system will be open to payment companies. This will allow them to develop innovative ways for people to pay, including options for small transactions, splitting bills with others, and payments requiring approval from multiple people.
Commenting on the development, Deputy Governor Andrew Abir expressed his belief that the digital shekel could complement the existing financial system. He even suggested it could lead to increased competition among banks, potentially resulting in higher interest rates offered to attract digital shekel holdings.
โThe digital shekel will not be developed by some anonymous Satoshi Nakamoto. Everyone will know who is behind the digital shekel and who is responsible for it the same Bank of Israel that stands behind the cash we all know and trust.โ
The idea of a CBDC first surfaced in Israel in 2017, but researchers recommended pausing development soon after. However, the Bank of Israel reignited the CBDC project in May 2021 and has since accelerated its research efforts.
In March 2022, the Bank squashed concerns that the digital shekel, as it’s envisioned, could pose a threat to the traditional banking system. Public backing for the CBDC also appears promising, with a May 11th public consultation report revealing mostly positive feedback.
This positive outlook in Israel aligns with a global trend towards digital currencies. According to research by the Bank for International Settlements (BIS), a staggering 90% of central banks worldwide are considering CBDCs. The Atlantic Council’s CBDC tracker confirms this global movement, reporting that 11 countries have already launched their digital currencies, while 15 are in the pilot stage and 26 others are in the development phase.