Israel's central bank is pushing forward with plans to issue a digital shekel, citing the need to improve the country's payment systems, but on Tuesday remained noncommittal on whether one would be launched.
In November 2021, the Bank of Israel stepped up its research and preparation for the possible issuance of a digital shekel to create a more efficient payment system after first considering issuing a central bank digital currency (CBDC) in late 2017.
"we remain committed to be at the frontier, and more than that, to support the effort of pushing the frontier"
Bank of Israel Governor Amir Yaron
"Whether or not we will issue a digital shekel is still an open question, as it is in most if not all other advanced economies," Bank of Israel Governor Amir Yaron said at a conference on digital currencies.
"Either way, we remain committed to be at the frontier, and more than that, to support the effort of pushing the frontier, in our CBDC explorations, as well as in our efforts to modernize and advance our payment systems ... and the financial system in general."
Israel's central bank has been experimenting with a digital shekel with its Hong Kong counterpart and the Bank for International Settlements. It said the so-called Sela project has proven the feasibility of a retail CBDC and combines "combines accessibility, competition, and preventative cyber security while retaining key advantages of physical cash".
Yaron said that given the rapid digitalization of the economy, working on a CBDC makes sense and noted that Israel has closed the gap with other countries while stressing that if Israel opts for one "it will provide at least as much privacy as digital means of payments" and maybe even a higher level.
Better competition, worse pushback
Deputy Governor Andrew Abir said that for Israel, issuing a digital shekel would provide more competition in a financial system dominated by a few large banks and institutions.
"The CBDC can offer a level playing field on which new entrants can offer financial products," he said.
Abir said a steep rise in interest rates in the past year demonstrated this need since commercial banks did not fully pass rate increases to the balances of their customers, while on their loans the transmission was full and immediate.
"And there has been an understandable backlash by the public," Abir added.