The Bank of Israel Explores CBDC Issuance Amidst Stablecoin Adoption
The Bank of Israel is actively considering the potential issuance of a central bank digital currency (CBDC), according to its Steering Committee on the Potential Issuance of a Digital Shekel. The committee has outlined various scenarios for the development and deployment of a digital shekel called “SHAKED,” including the possibility of increased stablecoin activity.
Potential Drivers for CBDC Development
The committee identified two potential drivers for CBDC development in Israel. Firstly, the increased adoption of stablecoins could “impair the payment system” and disrupt the monetary transmission process if stablecoins not pegged to the shekel gain popularity as a means of payment. While there are currently no significant signs of stablecoin adoption in Israel, the committee acknowledged that payment habits could change rapidly, especially if a major private sector entity issues a stablecoin.
Secondly, a decline in the use of cash in Israel could also spur CBDC development. Although cash is still widely used in consumer transactions in the country, the committee noted that changing payment habits among the public could result in a shift away from central bank fiat. The Bank of Israel aims to prevent private entities from gaining control over payments, and sees CBDC as a potential solution.
Considerations for CBDC Issuance
The committee highlighted that CBDC issuance could be considered to “support competition in the payments system and in the financial system in the digital era.” Additionally, the potential issuance of CBDC by other major economies, such as the United States or the European Union, could also influence Israel’s decision to deploy its own CBDC.
Monitoring the Situation
The Bank of Israel Steering Committee is actively monitoring the situation and preparing for the advancement of the digital shekel. Israel’s regulatory approach to cryptocurrencies appears to be following that of the United States, with proposed legislation that could classify crypto assets as securities in the country. However, industry executives have expressed concerns about the potential impact on the crypto industry.
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