The Bank of Israel (BoI) is speeding up efforts to develop its central bank digital currency (CBDC), dubbed the “digital shekel.” In a recent update on May 28, the bank revealed plans for the CBDC’s payment use case through the ‘Digital Shekel Challenge’ experiment, a key part of its action plan for the potential issuance of the CBDC.
The central bank stated in a press release that it plans to launch the “Digital Shekel Challenge,” an experiment inspired by Project Rosalind, a joint initiative between the Bank for International Settlements (BIS) and the Bank of England focused on digital currency API development.
Israel Digital Shekel Challenge Announced With the Aim of a Collaborative CBDC Development
As part of this challenge, Israel’s central bank will provide a sandbox environment and API layer, inviting private, public, and academic participants to build real-time CBDC payment systems for public use.
JUST IN: Bank of #Israel Launches #Digital Shekel Challenge. pic. .com/71NwUy1bgX
— cryptothedoggy (@cryptothedoggy) May 29, 2024
The program will have three phases – applications/presentations, access to the new network for selected projects, and a final presentation to judges.
The BoI stated it would prioritize “original and innovative” payment applications, whether improvements to existing systems or entirely new solutions, including for niche use cases.
Expressing his support for the digital shekel, BoI Deputy Governor Andrew Abir stated that the CBDC will be developed transparently by the central bank rather than anonymously.
“The success of the digital shekel will rely on collaboration between the Bank of Israel, the private sector, and the government,” Abir said. “Through this challenge, we are allowing the financial industry from both Israel and abroad, as well as a broad range of payment stakeholders, to practically engage with us in the thinking, planning, and design of the digital shekel.”
Abir also believes that the CBDC’s competition with banks is economically positive and that a digital shekel could incentivize banks to offer higher interest rates on deposits.
Bank of Israel leaves lending rate at 4.5%, as inflation and war uncertainty ramp up https://t.co/mnldC2sCQs
— The Times of Israel (@TimesofIsrael) May 27, 2024
Public Consultations Reveal Support and Privacy Concerns
The Bank of Israel disclosed plans to launch interest-bearing CBDC in March 2024 after actively working on a potential digital shekel since late 2017. In November 2021, it sped up its research and preparation efforts for the possible issuance of a digital currency to create a more efficient payment system.
In 2021, the central bank surveyed the public about its digital currency research. Most people supported the research but others expressed privacy concerns.
The BoI partnered with Hong Kong’s central bank and the BIS on Project Sela, successfully testing a retail CBDC that balances user accessibility, competition, cybersecurity, and cash benefits.
Yaron assured that a digital shekel would provide at least the same privacy protection as digital payments, potentially even higher standards if implemented.