© Reuters. FILE PHOTO: An Israeli flag flutters outside the Bank of Israel building in Jerusalem August 7, 2013. REUTERS/Ronen Zvulun
By Steven Scheer
JERUSALEM (Reuters) -Israel’s central bank is pushing forward with plans to issue a digital shekel, citing the need to improve the country’s payment systems, but on Tuesday remained noncommittal on whether one would be launched.
The Bank of Israel in November 2021 stepped up its research and preparation for the possible issuance of a digital shekel to create a more efficient payments system after first considering issuing a central bank digital currency (CBDC) in late 2017.
“Whether or not we will issue a digital shekel is still an open question, as it is in most if not all other advanced economies,” Bank of Israel Governor Amir Yaron said at a conference on digital currencies.
“Either way, we remain committed to be at the frontier, and more than that, to support the effort of pushing the frontier, in our CBDC explorations, as well as in our efforts to modernize and advance our payment systems … and the financial system in general,” Yaron said.
Israel’s central bank has been experimenting with a digital shekel with its Hong Kong counterpart and the Bank for International Settlements. It said the so-called Sela project has proven the feasibility of a retail CBDC and “combines accessibility, competition and preventative cyber security, while retaining key advantages of physical cash.”
Yaron said that given a rapid digitalisation of the economy, working on a CBDC makes sense and noted that Israel has closed the gap with other countries, while stressing that if Israel opts for one, “it will provide at least as much privacy as digital means of payments” and maybe even a higher level.
Deputy Governor Andrew Abir said that for Israel, issuing a digital shekel would provide more competition in a financial system dominated by a few large banks and institutions.
“The CBDC can offer a level playing field on which new entrants can offer financial products,” he said.
Abir said a steep rise in interest rates in the past year demonstrated this need since commercial banks did not fully pass rate increases to the balances of their customers, while on their loans the transmission was full and immediate.
“And there has been an understandable backlash by the public,” Abir said, adding that a digital currency could benefit consumers.
“I believe central banks should return to examine the possibility (of) remunerated CBDCs – that is, for the central bank to pay interest CBDC directly to the end users who hold it, and enjoy the security provided by the central bank. This is a complicated topic with many implications, and we will need to consider them as the project progresses,” Abir said.