Israel is the newest country to follow the world trend of creating state cryptocurrencies linked to central banks, the so-called CBDCs. The Israeli government revealed this week that it had conducted a pilot test of the digital shekel, hosted on the Ethereum blockchain. Thus, the first currency has already been successfully issued, but it is still far from being effectively implemented in the economy.
The announcement was made by Bank of Israel Vice President Andrew Abir during a conference at the Fair Value Forum of the Interdisciplinary Center Herzliya. He said that the first test had already been carried out with the pilot model of the central bank’s digital currency. It was also highlighted that the Israeli CBDC’s focus is on the evolution of the country’s payments system, and not the creation of “a speculative asset like bitcoin (BTC)”.
Digital Shekel will take at least five years
Abir was not very optimistic about the release of the digital shekel in the near future. “I had previously estimated that the chance of having a CBDC within five years would be 20%,” he said. “My expectations have increased a bit in the last year, mainly because other countries are also moving forward in their digital currencies. However, I still believe that there is less than a 50% chance that we will be able to do it within this period.”
In May, the Bank of Israel said for the first time that it was preparing an action plan to offer a cryptocurrency. However, the idea of issuing such a currency has been under discussion since 2017. The Israeli central bank’s efforts only intensified recently, when the government saw the rapid evolution of the economy and digital payments in other countries.
“The option of creating a CBDC is still being considered, and when we made our statement last month, it wasn’t to say what we’re developing, but to share what we don’t know yet and get feedback from the public,” he said. Open
Purpose is to digitize payments
Israel has seen very rapid and significant changes in its digital payments ecosystem in recent years, which follows the international trend towards digitization. Private and decentralized cryptocurrencies are gaining importance as an investment and a store of value. In the country, digital currencies are also being used for international transactions.
Thus, the government identified the need to supply the demand for digitized finance with a currency that the Bank of Israel can control and issue. Thus, the CBDC appears as an alternative for the country to offer a fully regulated, secure and centralized option so that its population is not left out in the process of digitizing finances, while reducing the demand for private cryptocurrencies.
According to Abir, the Bank of Israel is more concerned with staying on top of global trends in finance. “Israel’s payment system is at least a decade behind other countries,” he said. “But last year, we started to close that gap with the deployment of an infrastructure that allows contactless payments and the creation of digital wallets.”
Even with CBDC, banks are still needed
“We are in the middle of a disruptive technology process and we don’t know who the winners will be. Will it be banks, credit card companies, fintechs or big tech companies? There will be changes in the coming years that we still don’t know about. But it is clear that the payment system five years from now will not be the same as it is today”, said the vice president of the Bank of Israel.
Abir also clarified that the creation and implementation of a central bank digital currency in Israel will not eliminate the need for financial institutions and banks. “No central bank is going to introduce a digital currency for this purpose. Banks will still have an important role in the entire payment system.”
He also pointed out that there are significant differences between any cryptocurrency issued by a central bank and the better-known private digital currencies such as bitcoin (BTC). “We are talking about a payment system. Bitcoin is not a payment system and it is not a currency. At best, it’s a financial asset and, at worst, it’s a pyramid scam”, concluded the vice president.
With information: Bloomberg, Jerusalem Post