Bank of Israel Stays Committed to Digital Currency Plans, Waiting for ECB to Lead the Way
In a recent interview with Multibagger, Bank of Israel Deputy Governor Andrew Abir confirmed the bank's dedication to implementing a digital currency to enhance the country's payments system and drive innovation. However, the launch of a digital shekel is unlikely to happen before other advanced economies make a move.
As of March, 134 countries, accounting for 98% of the global economy, are exploring digital versions of their currencies with the aim of eventually phasing out cash. While countries like China are in advanced stages of pilot programs, the U.S. Federal Reserve is falling behind.
Bank of Israel initiated its research on a central bank digital currency (CBDC) back in 2017 and intensified its efforts in November 2020. The bank has been collaborating with Hong Kong, Sweden, Norway, and the Bank for International Settlements to experiment with a digital shekel. The project, known as the "Digital Shekel Challenge," involves participation from both fintech and traditional financial companies to showcase potential use cases.
Despite these preparations, Bank of Israel remains uncertain about launching a digital shekel. The ECB has also expressed similar sentiments about introducing a digital euro in Europe, contingent on cross-border payment services.
The main question at hand is whether the public will embrace a digital currency. Abir emphasizes the need for compelling use cases to drive adoption. He envisions a digital currency that pays interest to compete with bank deposits and incentivize the public to hold it.
The potential benefits of a CBDC include creating a level playing field for payment providers, reducing credit exposure, and streamlining supervision and capital requirements. A digital shekel would enable transactions with the central bank's money in any setting.
If Bank of Israel decides to proceed with a digital shekel, approval from the finance and justice ministries would be necessary. While the implementation process may take time, Abir believes that a digital shekel has the potential to revolutionize payment systems.
In conclusion, the global shift towards digital currencies could have significant implications for individuals' daily financial transactions. As central banks explore these innovations, it's crucial for the public to understand the potential benefits and challenges associated with a digital currency. Stay informed and be prepared for the future of payments.