Israel to Initiate Trial of Digital Shekel for Payment System

Israel Set to Pilot Test Digital Shekel for Payments


Jimmy Aki
Updated:
May 29, 2024 16:16 EDT
|
2 min read


The Bank of Israel (BoI) is expediting its efforts to develop its central bank digital currency (CBDC), known as the “digital shekel.” In a recent announcement on May 28, the bank unveiled plans for the CBDC’s payment use case through the ‘Digital Shekel Challenge’ experiment, a crucial component of its action plan for the potential issuance of the CBDC.
According to a press release from the central bank, it intends to launch the “Digital Shekel Challenge,” an experiment inspired by Project Rosalind, a collaborative initiative between the Bank for International Settlements (BIS) and the Bank of England that focuses on the development of digital currency APIs.
Israel Announces the Digital Shekel Challenge with the Goal of Collaborative CBDC Development
As part of this challenge, Israel’s central bank will provide a sandbox environment and API layer, inviting participants from the private, public, and academic sectors to build real-time CBDC payment systems for public use.
The program will consist of three phases – application/presentations, access to the new network for selected projects, and a final presentation to judges.
The BoI has stated that it will prioritize “original and innovative” payment applications, whether they are improvements to existing systems or entirely new solutions, including those for niche use cases.


Credit: Bank of Israel (BoI)
Expressing his support for the digital shekel, BoI Deputy Governor Andrew Abir emphasized that the CBDC will be developed transparently by the central bank and not anonymously.
“The success of the digital shekel will depend on collaboration between the Bank of Israel, the private sector, and the government,” said Abir. “Through this challenge, we are allowing the financial industry from both Israel and abroad, as well as a wide range of payment stakeholders, to actively participate in the thinking, planning, and design of the digital shekel.”
Abir also believes that the CBDC’s competition with banks is economically beneficial and that a digital shekel could incentivize banks to offer higher interest rates on deposits.
​Public Consultations Show Support and Privacy Concerns
In March 2024, the Bank of Israel revealed plans to launch an interest-bearing CBDC after actively working on the potential digital shekel since late 2017. In November 2021, it accelerated its research and preparation efforts for the possible issuance of a digital currency in order to create a more efficient payment system.
In 2021, the central bank conducted a survey among the public regarding its digital currency research. While most people expressed support for the research, some raised concerns about privacy.
The BoI 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 the benefits of cash.
Yaron assured that a digital shekel would provide at least the same level of privacy protection as digital payments, and potentially even higher standards if implemented.
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