Central Bank of Israel Nixes Idea Of A Digital Shekel

Innovation, News, Regulation | November 10, 2018 By:

The Bank of Israel (BoI) has published the results of a research study commissioned in late 2017 to examine the possibility of issuing a cryptocurrency that would be equivalent in value to the shekel.

The “digital Shekel,” the report found, is not adequate for Israel’s needs in several areas. Therefore, the report recommends that the Israel Central Bank not issue the cryptocurrency in the near future.

Reasons to set aside the digital shekel

In December 2017, a joint team of the Israeli Ministry of Finance and the Bank of Israel met under the supervision of the outgoing Governor of BoI, Dr. Karnit Flug, to discuss the pros and cons of issuing a digital currency from the Central Bank of Israel (CBDC, central bank digital currency).

The potential positive aspects of the digital Shekel given at that time included the provision of faster and more instantaneous payments and the reduction of the undeclared economy, which would result in an increase in tax revenues.

However, the new report published today makes clear that although the possibility of issuing a CBDC has not been permanently ruled out, the research clearly recommends that the current state be maintained at least for the foreseeable future.

“The team does not recommend that the Bank of Israel issue digital currency in the near future,” said the report. “It is necessary to continue examining the field and follow developments around the world before there are adequate reasons to decide to recommend the issuance of digital currency. ”

According to the BoI, although several central banks around the world are studying the possibility of issuing CBDC or incorporating DLT into payment systems, no central bank in an “advanced” economy has issued a CBDC so far for general use. This point of view is supported by the fact that Venezuela is the only country in the world to implement a national CBDC program. Venezuela has had a series of well-publicized controversies and failures in recent months.

Going forward, the BoI asserts that while CBDCs may be useful in maintaining public access to the central bank’s responsibility in the case of a substantially reduced use of cash as is the case in Sweden, this problem is not relevant to Israel at this time. Another possible use of the digital Shekel as a means to support payment systems and make them more efficient is recognized as an additional monetary tool, but not as a central objective of issuing a CBDC.

The report also indicates that the introduction of CBDCs entails its own litany of risks and difficulties that can have a major impact on the Israeli financial system, the Bank of Israel, and the country’s payment system. Until these risks are fully understood, the report says, the research team will continue to study the potential impact of the digital Shekel and follow the developments of the CBDC around the world in order to recommend a change in the status quo, when applicable.

This story was originally published in Spanish at Cripto247