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Israeli Central Bank Official Embraces CBDC Competition with Banks for Economic Growth

Israeli central bank official, Andrew Abir, sees the introduction of the digital shekel as a catalyst for technological advancements that will drive competition in the banking sector. He acknowledges the ongoing efforts to increase competition in the Israeli banking industry and states that there is still a long way to go. Abir notes that public sentiment towards commercial banks in Israel is not always favorable, and part of the discontent stems from the need to improve competition in certain segments of the industry.

The digital shekel, currently in the planning stages, is designed to include an option for paying interest. Abir assures the public that the digital shekel will be developed by the Bank of Israel, a trusted institution that stands behind the traditional cash system. He emphasizes that the digital shekel will not be created by an anonymous entity like Satoshi Nakamoto, the pseudonymous creator of Bitcoin, but rather by a transparent and accountable central bank.

Abir highlights the advantages of introducing a digital shekel for the Bank of Israel as well. It would provide the central bank with greater accessibility to central bank money, facilitating its use in digital payments. This would counteract the declining trend in central bank money usage resulting from advancements in the private sector. Additionally, the digital shekel could incentivize commercial banks to offer higher interest rates to customers, as the option to hold digital shekels would increase competition.

The digital shekel has garnered strong support among the Israeli public, indicating a positive reception for the potential benefits it offers. The introduction of a CBDC like the digital shekel is seen as a step towards enhancing competition in the financial system, driving innovation, and ultimately benefiting the Israeli economy.

As the Bank of Israel continues to develop the digital shekel, it aims to create a trusted and efficient digital currency that aligns with the country’s financial goals. With the support of central bank officials like Andrew Abir, the digital shekel has the potential to revolutionize the Israeli banking industry and pave the way for a more competitive and technologically advanced financial system.

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The Bank of Israel to Accelerate Its CBDC Research for a Digital Shekel

The Bank of Israel is developing an action plan that will help it advance its research on the potential issuance of its Central Bank Digital Currency (CBDC), dubbed the digital shekel.

According to a press release shared by the Israeli Central Bank, the decision to accelerate its ongoing probe into the use cases of a CBDC does not imply that it has decided to issue one. The bank said in a release:

“The Bank of Israel has decided to accelerate its learning, research, and preparation leading to the potential issuance of a Bank of Israel digital currency in the future. It is important to emphasize: Similar to many other central banks, the Bank of Israel has not yet decided whether it intends to issue a digital currency.”

The Central Bank added, “The Bank of Israel is preparing an action plan, so that if conditions develop in the future that would lead to a Bank of Israel assessment that the benefits of issuing a digital shekel outweigh the costs and potential risks, the Bank of Israel will be prepared to put such a plan into action.”

The Bank of Israel says it will consider the issuance of a digital shekel only if the digital currency will provide a more efficient, advanced, and secure alternative to existing means of payment. It also hopes that with the digital shekel, this will enable Israel to remain competitive in the digital age and create an efficient and inexpensive infrastructure for cross-border payments.

To champion this new drive, the Bank has inaugurated a steering committee headed by the bank’s Deputy Governor. Members of the committee will be drawn from different fields and units within the bank.

While the Central Bank of the Bahamas has launched the world’s first CBDC, The Sand Dollar, no major economy has yet achieved this milestone. However, several nations are advancing their research and use case development of CBDCs, with China advancing its commercial testing of its proposed Digital Yuan.

Bank of Israel Has Conducted Digital Currency Shekel Crypto Testing

Israel has already carried out a pilot test and is seriously considering implementing a CBDC of digital Shekel.

In a recent conference of the Fair Value Forum of IDC Herzliya, the deputy governor of the Bank of Israel, Andrew Abir, said that the central bank has already conducted a digital currency pilot.

Abir stated that the bank concerned the most about staying on top of emerging global trends. The deputy governor said that the payment system in Israeli is lagging behind other nations.

However, Abri clarified that the objective of implementing CDBC is not going to eliminate local banks.

“No central bank will introduce a digital currency for this purpose. The banks will still have an important part in the entire payment system,” he said.

He further clarified that the CBDC would not be designed to protect against Bitcoin, stating that a central bank’s digital currency is a payment system. “Bitcoin is not a payment system, and it is not a currency. It is a financial asset in the best situation, and in the worst case, it is a pyramid scam,” Abir said.

In 2017, the Bank of Israel discussed the concept of issuing a central bank digital currency but later decided to accelerate its research and preparation efforts to issue the coin.

In the previous year, he stated that the central bank has begun to close the gap with the distribution of the infrastructure that allows contactless payment and entry of digital wallet.

Last month, the Bank of Israel stated that it was developing a strategic plan for offering a digital currency.

“The option for a CBDC is still being examined, and when we made our statement last month,” Abir said.

Cryptocurrency Pushing Central Banks

The crypto world is undergoing a period of rapid progression as firms and governments worldwide focus on how they can leverage the technology for maximum returns.

Last week, the G7 said that it is working on a common CBDC standard for central banks to issue their digital currencies.

The European Central Bank (ECB) recently stated that nations that decide not to launch a central bank digital currency could be left out of the loop to cross border payments.

Just like Nigeria, Brazil, China, and others, Israel is working on its digital currency that will work as an extension of the physical currency that already exists.

In March, Jerome Powel, the US Federal Reserve chairman, clarified that the Fed’s current exploration of CBDCs was not motivated by cryptocurrencies and stablecoins. Powel’s comments about cryptocurrencies came as a response to whether CBDCs are a reaction to the financial stability implications of innovations like Bitcoin.

Last week, El Salvador became the first nation to accept Bitcoin as legal tender alongside the US dollar because the leading cryptocurrency offers greater advantages and flexibility than traditional currencies.

Bank of Israel Issues Draft Regulations Regarding AML for Crypto Firms

The Bank of Israel has issued a new draft guideline to stakeholders in the cryptocurrency ecosystem concerning Anti-Money Laundering (AML) provisions.

According to the press release published by the bank, the new guideline becomes necessitated with the growing number of funds flowing into the traditional banking system through the crypto ecosystem.

According to the new guideline, the Bank of Israel will mandate financial institutions operating in the country to “conduct a risk assessment and set out policy and procedures for the transfer of money that originates in or is destined for virtual currencies, taking a risk-based approach and identifying the virtual currency service provider.”

The apex bank will not give financial institutions the power to refuse any virtual asset service operator who has a license with a recognized regulator in the country, including the Supervisor of the Capital Market, Insurance and Savings Authority, and is subject to the Money Laundering Prohibition Order. The new guideline will give banks the leverage to analyze each crypto startup on case-by-case basis.

Crypto Funds Monitoring to be Activated

The digital currency ecosystem is replete with many bad actors, as digital currencies make it easy to shield transactions from authorities through their cryptographic nature. The new guideline will give banks the power to clarify the origin of any funds involved in a digital currency transaction and their purported destination until they finally enter the crypto ecosystem.

“The Banking Supervision Department is monitoring activity in virtual currencies as well as domestic and international regulation being developed in this field. In view of the increase in customers’ activity volumes in such currencies, and due to the potential for streamlining payments and international transfers, this draft regulation was formulated,” said Yair Avidan, Supervisor of Banks, adding that;

“Activity in virtual currencies comes with high risk in terms of the money laundering prohibition and the prohibition against the financing of terrorism. As such, this draft regulation sets out a number of principles for managing such risks, which will help banking corporation customers who wish to realize the money that originates in virtual currency activity while managing the risks inherent to the banking system as part of such activity.”

The bank said these new guidelines are up for public opinion comments and that it has been sent out to the Advisory Council on Banking Matters. This new guideline cements Israel’s engagement with digital assets, a push that has made the bank accelerate its Central Bank Digital Currency (CBDC) or Digital Shekel research strides.