The Bank of Israel has released the results of a research study commissioned in late 2017 to examine the feasibility of issuing a cryptocurrency that would be equivalent in value to the shekel.
Dubbed the ‘Digital Shekel’, the proposed cryptocurrency has been found to be unsuitable to the needs of Israel in a number of areas and consequently the report has recommended that the Israeli central bank should not issue the cryptocurrency in the near future.
Reasons for Shelving the Digital Shekel
In December 2017, CCN reported that a joint team from the Israeli finance ministry and the Bank of Israel was convened under the supervision of outgoing BoI governor Dr. Karnit Flug to examine the pros and cons of issuing an Israeli Central Bank digital Currency (CBDC). Potential positives of the Digital Shekel given at the time included the provision of faster, near-instant payments and the reduction of the unreported economy, which would give rise to an increase in tax receipts.
In an announcement about the new report published earlier today, however, the BoI makes it clear that even though the possibility of issuing a CBDC has not been permanently discarded, the research clearly recommends that the status quo be maintained at least in the immediate future.
An excerpt from the announcement reads:
“The team does not recommend that the Bank of Israel issue digital currency in the near future. It is necessary to continue examining the field and to follow developments around the world before there are proper grounds for a decision to recommend issuing digital currency.”
According to the BoI, even though a number of central banks around the world are looking into the possibility of issuing CBDCs or embedding DLT in payment systems, no central bank in an “advanced” economy has so far issued a CBDC for general use. This point of view is backed up by the fact that Venezuela is the only country in the world to implement a nationwide CBDC program which has had a series of well-publicized controversies and failures over the past few months.
Going further, the BoI states that while CBDCs may be useful for the purpose of maintaining public access to the central bank’s liability in the event of substantially reduced cash usage as is the case in Sweden, this problem is not relevant to Israel at the moment. Another possible use of the Digital Shekel as a means of supporting payments systems and making them more efficient is acknowledged as an additional monetary tool, but not a core objective of issuing a CBDC.
The report also indicates that the introduction of CBDCs brings its own litany of risks and difficulties which may have a potentially large impact on the Israeli financial system, the Bank of Israel and the country’s payments system. Until these risks are fully understood, says the report, the research team will continue to study the potential impact of the Digital Shekel and follow CBDC developments around the world so as to be able to recommend a change in the status quo if and when applicable.
An executive summary of the report in English can be found here while the full report in Hebrew is available here.
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