The Bank of Israel is making rapid progress in developing its central bank digital currency, the “digital shekel.” In a recent update, the bank announced plans for the CBDC’s payment use case through the ‘Digital Shekel Challenge’ experiment. This initiative is part of the bank’s action plan for the potential issuance of the CBDC and is inspired by Project Rosalind, a collaboration between the Bank for International Settlements (BIS) and the Bank of England focused on digital currency API development. The ‘Digital Shekel Challenge’ will invite private, public, and academic participants to build real-time CBDC payment systems for public use, with a sandbox environment and API layer provided by the central bank.
The ‘Digital Shekel Challenge’ program will consist of three phases – applications/presentations, access to the new network for selected projects, and a final presentation to judges. The Bank of Israel is looking for “original and innovative” payment applications, whether enhancements to existing systems or entirely new solutions, including for niche use cases. Deputy Governor Andrew Abir expressed his support for the digital shekel, emphasizing the importance of collaboration between the central bank, the private sector, and the government in developing the CBDC transparently. Abir believes that the digital shekel could incentivize banks to offer higher interest rates on deposits, creating economic benefits.
In March 2024, the Bank of Israel announced plans to launch an interest-bearing CBDC after several years of research and preparation for a potential digital shekel issuance. The central bank had been actively working on the concept of a digital currency since late 2017, with a focus on creating a more efficient payment system. Public consultations conducted by the bank in 2021 revealed overall support for the digital currency research, although some individuals raised privacy concerns. The Bank of Israel collaborated with Hong Kong’s central bank and the BIS on Project Sela, successfully testing a retail CBDC that prioritizes user accessibility, competition, cybersecurity, and cash benefits.
The Bank of Israel’s efforts to develop the digital shekel align with global trends in central bank digital currency development, with an increasing number of countries exploring the potential benefits of CBDCs. By actively involving stakeholders from the private, public, and academic sectors in the ‘Digital Shekel Challenge,’ the central bank aims to foster innovation and collaboration in the development of CBDC payment systems. The transparency and partnership approach advocated by Deputy Governor Andrew Abir reflect the bank’s commitment to inclusive and comprehensive engagement in the design and implementation of the digital shekel.
As the Bank of Israel progresses with its digital currency initiatives, including the ‘Digital Shekel Challenge’ and the potential issuance of the CBDC, stakeholders in the financial industry and payment sector both in Israel and abroad have the opportunity to contribute to the development and implementation of the digital shekel. The central bank’s focus on innovation, collaboration, and transparency in the creation of the digital shekel reflects a forward-thinking approach to digital currency development. By prioritizing original and innovative payment applications and addressing privacy concerns, the Bank of Israel aims to create a successful and widely accepted digital shekel that can enhance the efficiency and competitiveness of the financial system.
