3 - 4 minute read
Israel’s central bank is considering the potential issuance of a central bank digital currency (CBDC), also known as a digital shekel, to combat the increasing use of stablecoins, which it notes could threaten the payment system and monetary transmission. The Bank of Israel Steering Committee outlined several potential scenarios for the development and deployment of a CBDC, including a potential decline in the use of cash in Israel and the need to support competition in the payments and financial system in the digital era. However, no formal decision has yet been made on the issuance of a CBDC in Israel.
One potential driver of CBDC development is increased stablecoin adoption, which could harm the payment system if not pegged to the shekel. In a scenario of issuance by a major private sector entity, payment habits of the public could change rapidly, leading to a shift away from using central bank fiat. The Bank of Israel does not want this scenario, nor does it desire private entities controlling payments, hence the potential solution of a CBDC.
The Bank of Israel is also monitoring the situation regarding CBDCs being issued by the United States or the European Union, which could influence Israel’s decision to deploy one.
The Bank of Israel Steering Committee concluded that it was keeping a close eye on the situation and preparing an action plan for the potential issuance of a digital shekel, although it acknowledged there were no signs of substantial adoption of stablecoins as a means of payment in Israel.
CBDCs are digital currencies issued by central banks that aim to improve efficiency and cost-effectiveness in payment systems. They could potentially lead to more financial inclusion and reduce fraud, but also raise concerns over privacy and data security.
To traders, the potential issuance of a CBDC in Israel could have significant implications for the future of the shekel and stablecoin usage in the country. It could lead to increased competition in the payments and financial system, but also raise concerns over the potential for government control and surveillance.
The Bottom Line
While no formal decision has been made, the Bank of Israel’s consideration of a CBDC could have significant implications for the Israeli payment system and the future of stablecoin usage. Traders should keep a close eye on any developments regarding the potential issuance of a digital shekel and how it could impact the market in the future.
