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The Bank of Israel does not want private companies taking over the digital payments system in the country.
The Bank of Israel says it's preparing an action plan for the potential issuance of a central bank digital currency (CBDC),though a formal decision has yet to be made.
On April 17, the Bank of Israel Steering Committee on the Potential Issuance of a Digital Shekel outlined possible scenarios for the development and deployment of a CBDC, a digital shekel called “SHAKED.”
It provided several scenarios that could lead to the issuance of a digital shekel, among them was increased stablecoin activity.
Increased adoption of stablecoins may “impair the payment system” it noted,before adding that stablecoins not pegged to the shekel “might also harm the monetary transmission.”
“At this point, there are no signs of substantial adoption of stablecoins as means of payment in Israel. However, paying habits of the public might change rapidly, for instance in a scenario of issuance by a major private sector entity.”
Another potential driver of CBDC development is a decline in the use of cash in Israel the Committee noted. It said cash is still used in a significant portion of consumer transactions in the country but a change in the public’s payment habits may result in a shift away from using central bank fiat.
The Bank of Israel does not want this scenario or private entities controlling payments so a CBDC could be the solution.
The Bank of Israel have released a document that outlines the conditions that would enable or support a decision to issue a digital Shekel https://t.co/ALU4FEYUTh
— Digital Pound Foundation (@digitalpoundfdn) April 17, 2023
...#Israel #Shekel #CBDC #DigitalCurrency #DigitalMoney #DigitalPayments #CBDCs #DigitalCurrencies #DigitalShekel pic.twitter.com/Jbe49i1VnR
It also said that consideration for the issuance of a CBDC would be made to “support competition in the payments system and in the financial system in the digital era.”
If the United States or the European Union issues a CBDC, then this would also influence Israel’s decision to deploy one, it stated.
The Bank of Israel Steering Committee concluded that it was monitoring the situation in preparation for advancing the digital shekel.
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Israel appears to be shadowing the U.S. in terms of crypto regulation. Earlier this year the country’s securities regulator, the Israel Securities Authority (ISA), proposed legislation that would classify crypto assets as securities in the country.
Industry executives have expressed concern claiming it could “kill the industry.”
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Despite the pilot, the central bank's deputy governor said he was apprehensive about launching a full-scale CBDC in Israel, and referred to Bitcoin as a "pyramid scam."
The Bank of Israel has reportedly already issued a central bank digital currency through a pilot test of a digital shekel.
According to a Monday report from the Jerusalem Post, Bank of Israel deputy governor, Andrew Abir, said the financial institution had started to conduct a pilot program for a digital shekel. Speaking at a conference of the Fair Value Forum of IDC Herzliya, Abir added that he was not optimistic about the bank issuing a central bank digital currency, or CBDC, despite the fact he confirmed a pilot test was underway.
“I had previously estimated that the chance of having a CBDC within five years is 20%,” said Abir. “My estimate has increased a bit in the last year, mainly because other countries are advancing with it too, but still there is less than a 50% chance.”
The Bank of Israel has made no formal announcement on its website regarding the issuance of a digital shekel at the time of publication. Last month, the financial institution said it was preparing an action plan to explore the benefits of a CBDC on the Israeli economy, adding it would be prepared to do so should the benefits "outweigh the costs and potential risks."
Related: Israel's central bank floats possible digital shekel with new action plan
At the time, the central bank said it may consider issuing a CBDC if such meets the needs of the future digital economy and provides more efficient cross-border payments. Bank of Israel also hopes to reduce the use of cash and ensure the public can make payments with "a certain level of privacy."
“The option for a CBDC is still being examined, and when we made our statement last month, it was not to say what we are doing, but rather to share what we do not know and receive feedback from the public,” said the deputy governor. He added that the country’s banks “will still have an important part in the entire payment system” following any potential rollout of a digital shekel.
Despite his seeming willingness to eventually integrate a CBDC in the country’s economy, Abir criticized Bitcoin (BTC) as a means of paymen:
“What we are talking about is a payment system. Bitcoin is not a payment system, and it is not a currency. In the best situation, it is a financial asset, and in the worst case, it is a pyramid scam.”
Israel’s central bank begin exploring the introduction of a CBDC four years ago with the establishment of an interdepartmental group tasked with exploring the matter. In 2018, the team recommended against the Bank of Israel issuing a digital currency, saying "no advanced economy has yet issued digital currency for broad use."