The Central Bank of Israel has announced plans to introduce a new Central Bank Digital Currency (CBDC) denominated in Israeli Shekels, with the option for the digital currency to bear interest. The announcement, made on March 11, outlined the features of the shekel CBDC, which will operate on a two-tier model, offering instant 24/7 payments, multi-payment support, offline usability, balance limits, and the potential for the CBDC to accrue interest. The central bank emphasized that while it will have oversight and control over the system, it will not have access to personally identifiable information regarding end-user balances and transactions, ensuring privacy for users.
Currently, Israeli commercial banks provide interest rates of 4.86% on fiat shekel deposits and savings. However, under the central bank's proposed plan, banks will have the option to hold shekels in the form of CBDC as part of their short-term liquidity reserves, without incurring interest charges. The design of the CBDC system aims to adhere to specified assumptions, including the enforcement of holding limits and the application of interest rates based on user types and balance sizes. Centralizing this data structure offers advantages in managing these features effectively.
The initiative to introduce a digital shekel has been under consideration in Israel since 2021, with discussions ongoing regarding the potential implementation of pilot tests. However, as of the current announcement, no concrete pilot tests have been conducted, and the decisions regarding the design and operation of the digital shekel system are subject to further review and refinement by the Bank of Israel. The central bank emphasized the complexity of these decisions, given the interdependencies among various components of the digital shekel ecosystem.
In April 2023, there were discussions within the Bank of Israel regarding the issuance of a shekel CBDC, particularly if the usage of stablecoins gained traction in the country. At that time, the central bank noted that there were no significant signs of stablecoin adoption for payments within Israel. These considerations reflect the evolving landscape of digital currencies and the central bank's commitment to staying abreast of developments to ensure the stability and efficiency of the country's financial system.
