Israel’s digital shekel launch on hold until first western central bank pulls trigger

Bank of Israel (BOI) is committed to exploring plans to launch a digital shekel but is waiting for other major economies to make the first move.

“We’re all waiting for a central bank to launch a digital currency,” said Deputy Governor Andrew Abir, likely referring to the European Central Bank (ECB). He expects a domino effect once a major player enters the field.

This cautious approach comes despite widespread global interest in Central Bank Digital Currencies (CBDCs). As of March, nearly all economies were exploring digital versions of their currencies. China is leading the pack with pilot programnes, while the US remains undecided.

BOI’s digital shekel experiment

The BOI began researching a CBDC in 2017. There were collaborations with international counterparts, inviting companies to participate in its “Digital Shekel Challenge” to explore potential uses.

Public adoption and incentives

While planning is underway, the BOI acknowledges public adoption is a key question. It is conducting behavioral studies to understand user preferences. Abir believes offering interest on a digital shekel could incentivise usage, especially considering Israel’s concentrated banking system dominated by two large players.

“A CBDC would create a level playing field for payment providers,” Abir explained. Unlike traditional payment systems, a CBDC wouldn’t require users to hold funds with a specific company, potentially reducing regulatory burdens.

Benefits and timeline

A digital shekel would enable people to “pay with the central bank’s money everywhere,” Abir said. However, launching it would require approval from multiple government ministries.

“It will take time,” Abir concluded, “but a digital shekel has the potential to revolutionize payment systems.”