The Bank of Israel is now starting a pilot phase for a CBDC (Central Bank Digital Currency), the Digital Shekel. It is being built on the Ethereum network. The Bank of Israel has been studying cryptocurrencies since 2017.
In a report from an Israeli financial news publication called Globe, the author says,
“The Bank of Israel has adopted Etherum’s blockchain technology. The second largest in the world after Bitcoin, to examine the issuance of the digital shekel – Globes has learned. Teams from the Bank’s Information Technology Division set up an experimental environment based on Ethereum’s blockchain technology.”
The writer says the adoption process of a Central Bank backed cryptocurrency on the blockchain should be slow. They fear that blockchain and crypto if adopted too early could pose risks for banks whose main role they say is “financial intermediation.”
What Is a BOI CBDC?
It was revealed last May in a letter released on BOI.org that the bank has been studying digital currencies since 2017.
However, according to the report, some officials in the BOI have been skeptical and ill willed toward blockchain and crypto. Governor Karnit Flug disliked the idea of a digital dollar back in 2018 and dismayed the central bank otherwise at the time
Now that Flug is a former a official, the bank seems to have regained interest in digital currencies. The letter released last month in May revealed that the bank wants to put in place a plan for a digital currency. They are interested in having the currency ready to roll out if the central bank declares that the benefits of a CBDC outweigh the cons.
The bank deems that they need to expedite their study of this subject. However, the BOI made it very clear in their report that they are in no form announcing the release of a digital Shekel. The bank clearly distinguished the also the difference between a digital shekel and other cryptocurrencies like Bitcoin. They pointed out that cryptos like Bitcoin and Ethereum have no country or central authority which they adhere to. However, CBDCs will have a central intermediary and are restricted to that governance.
The bank also stated that a CBDC is not the only solution for what they say “refining existing payment systems.” So, there is not telling when a CBDC backed by Israel could roll out. And there is no certainty that it ever will. However, the fact that Israel is in talks of piloting a CBDC is big news without a doubt.
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Aaron is passionate about blockchain and has been an investor in cryptocurrencies for the past years. He enjoys engaging with other people in the cryptocurrency community online, particularly on Telegram, and learning from experts.