Digital shekel

• National Cryptocurrencies (CBDC)

2022: Bank of Israel begins testing digital shekel

The Bank of Israel announced on June 21, 2022, the start of tests of technology that would allow non-cash payments using digital shekel. As noted in credit institutions, one of the main directions of this work is to find a balance between ensuring the confidentiality that cash gives and the impossibility of using CBDC for such purposes as tax evasion and money laundering.

During testing, a model developed by VMware was considered. According to the model, citizens have a wallet in which "ordinary" digital shekels can be stored, the transfer of which is registered in the register, and "private" digital shekels, the details of the transfer of which are not registered openly, and where both parties to the transaction enjoy complete confidentiality, as with cash payments.

Bank of Israel begins testing digital shekel

The bank or government will establish a periodic "budget" for payments using private shekels. For example, each wallet will be able to pay up to 1,000 shekels per month in private form, and in excess of this limit, all transactions will be entered into the register.

The bank claims that the test results proved the technical feasibility of the system, but many issues remain that need to be resolved. For example, what is the correct private budget, and is it right to allocate the same amount for each type of wallet - private and corporate.

The tests, which used the cloud DLT infrastructure and the Quorum blockchain based on Ethereum, tested the possibility of performing basic actions, including issuing and transferring digital currency from one wallet to another.

In addition, the bank studied the possibility of imposing quantitative restrictions on payment transactions, as well as using "smart contracts" for transactions for payment and transfer of funds, but expressed doubts about their use due to security concerns.^[1]

2021: Israeli Central Bank begins work on digital shekel

In mid-May 2021, the central bank Israel announced that it was considering issuing a digital shekel. In light of global changes in the sphere digital currencies , the Bank of Israel decided to accelerate its research on the launch state cryptocurrencies in the future.

Major central banks have stepped up research into CBDC as an additional means of payment and creating new technology to keep pace with the digital economy, and the Israeli central bank has no intention of lagging behind its peers. Nevertheless, the Bank of Israel said in a statement that the regulator "has not yet decided whether it is ready to issue digital currency."

The Central Bank of Israel has begun work on a digital shekel

The Bank of Israel began to consider the possibility of issuing its CBDC (Central Bank Digital Currency) back in 2017, when there was a boom in cryptocurrencies. However, financial specialists attracted by the regulator did not recommend rushing with this undertaking. Given the active development of the digital economy, the Central Bank decided to return to previously postponed developments.

A steering committee set up by the bank has issued a report outlining the potential benefits, a draft model and questions to explore. The draft model provides for a two-tier structure in which the central bank provides digital shekels to private sector suppliers, who then act as a cryptocurrency interface for the general public. The Central Bank intends to create an appropriate infrastructure using DLT to provide private sector issuers with the opportunity to compete in the digital market.

The draft model is the basis for discussing and exploring alternatives that are entrusted to the working groups dealing with this issue at the Bank of Israel, the central bank explained. - After publication, this document will also serve as the basis for discussion in the professional community of Israel of the necessary characteristics of the digital shekel.[2]

Notes