Israel's Central Bank Plans Interest-Bearing Digital Shekel: Details Revealed
Summary:
The Central Bank of Israel plans to back a New Israeli Shekel (ILA) Central Bank Digital Currency (CBDC) that could bear interest. The proposed ILA CBDC will support instant, round-the-clock payments, offline usage, multiple payments, and set restrictions on balances. However, the interest-bearing option remains the bank's prerogative. Commercial banks will be allowed to incorporate ILA CBDC in their short-term liquidity buffer, however, without any interest. Though the idea of a digital shekel has been in talks since 2021, no pilot tests have been initiated so far.
The Central Bank of Israel has announced plans to back a Central Bank Digital Currency (CBDC) for the New Israeli Shekel (ILA) that may carry interest. The bank's announcement, which came on March 11, detailed that the proposed ILA CBDC would use a two-tier system, support multiple payments, offer round-the-clock instant payments, have limitations on balances, afford offline usage, and hold the potential to earn interest. The central bank emphasized that while it could set the necessary information types for system operation, control and surveillance, it would not have access to personal data relating to individual users' balances and transactions.
Commercial banks in Israel currently offer an interest rate of 4.86% on conventional ILA deposits and savings held by their customers. Under the new plan outlined by the central bank, these commercial banks could include the ILA CBDC in their short-term liquidity buffer; however, this would not yield any interest. As researchers noted, "[T]he data structure must ensure the system is compliant with all stipulations set out in Section 2.1, including the capacity to enforce holding restrictions and administer interest.” They also commented on the increased benefit of a centralized database when interest rates depend on factors such as the user type or balance size.
The Bank of Israel has been mulling over launching a digital shekel since 2021, but as yet no tangible pilot tests have been initiated. The bank issued a statement to the effect that "considering each component of the digital shekel system is interdependent, no decisions have been finalized." In April 2023, Cointelegraph reported speculation that increasing stablecoin usage might induce the central bank to roll out an ILA CBDC. However, the bank countered such estimations, stating that "currently, there is no substantial evidence to suggest stablecoins are being widely used as a payment method in Israel."
Related: A local Web3 community has initiated 'Crypto Aid Israel' to assist displaced residents.
Published At
3/11/2024 11:18:26 PM
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