Bank of Israel Official Expects CBDC to Improve Financial Competition

Jimmy Aki
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Bank of Israel Deputy Governor Andrew Abir had thrown his weight behind “Digital Shekel,” Israel’s proposed central bank digital currency (CBDC). He explained that the CBDC will be a competitive alternative to the various payment methods that have gradually displaced traditional cash in recent years.

Abir gave his opinion on April 16 during the “Engines of the Israeli Ecosystem” conference hosted by the Globes newspaper.

Bank of Israel Official Touts Digital Shekel to Improve Digital Economy

During his conference speech, Andrew Abir highlighted the efforts of legislators and regulators, including the Bank of Israel, to improve competition in the banking sector.

These efforts have included regulatory measures such as separating credit card companies from banks, easing regulations to encourage new banks, and requiring banks to provide customers with a “uniform bank identity document.”

While these steps have improved the competitive landscape, Abir stated that there is still much progress to be made.

He pointed out that advancements in technology have enabled the Bank of Israel to offer the public a new product, the digital shekel. Unlike a traditional bank deposit, the digital shekel carries a lower level of risk and enjoys high public trust, thus the growing optimism that the CBDC will be a game-changer for competition in the financial system.

The Deputy Governor explained that the digital shekel will bring the money issued by the Bank of Israel into all aspects of daily life. As the economy becomes increasingly digital, there are many transactions, such as e-commerce, that cannot be paid for with traditional bank-issued cash.

The digital shekel will allow people to use Bank of Israel money for any transaction, intensifying competition between different payment methods.

Additionally, the digital shekel will serve as a tool for innovation. Currently, only banks have access to digital money at the Bank of Israel, but the digital shekel will operate on a two-tier model, with a range of entities that can serve as “Payment Service Providers or as Additional Services Providers.”

This means that a wide range of entities, including “payment service providers, fintech companies, and consumer clubs,” will be able to use the digital shekel platform. This will enable the implementation of simple payment operations as well as the development of advanced and innovative use cases.

Abir also highlighted that the impact of the digital shekel on competition extends beyond payments. It could also influence competition in deposits, as currently, people mainly store their money in banks. The introduction of digital shekel as an alternative could prompt banks to offer incentives to retain customers, such as interest on current accounts and higher deposit rates.

Bank of Israel Official Clarifies Digital Shekel’s Rollout & Independence from Bitcoin

Abir has disclosed that the digital shekel is still in the planning stages.

He said,

“Like the central banks of all developed economies, the Bank of Israel has not yet decided on the possible issuance of the digital shekel. The digital shekel project is an “action plan” – at this stage, its role is to enable us to be ready to issue the digital shekel if and when we find it to be right and necessary. “

Nevertheless, the central bank will launch an API-Sanbox in the coming weeks to test the use of digital shekel.​​

An API-based sandbox is a testing environment provided to allow users to interact with a product in a controlled and safe manner

Abir also noted that the CBDC will differ from conventional digital currencies like Bitcoin.

He explained that unlike Bitcoin, which was created by an anonymous entity known as Satoshi Nakamoto, the digital shekel will be developed and managed by the central bank, specifically the Bank of Israel. This transparency will ensure accountability and trust, as the currency issuer will be known.

Another key distinction is in the stability of value. While Bitcoin can experience price fluctuation amid some experts’ support for its investment, the value of the digital shekel will remain constant. One digital shekel will always be equivalent to one physical shekel or one shekel in a bank account, ensuring stability and predictability in its value.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.