Bank of Israel Reveals Design for Central Bank Digital Currency (CBDC)

The Bank of Israel has published a paper outlining a possible design for a central bank digital currency (CBDC), also known as the digital shekel (DS). The proposed digital currency is intended for both retail and wholesale use.

Multipurpose CBDC

The DS will be a multipurpose digital currency that addresses both the retail needs of end-users, such as households and businesses, as well as the wholesale needs of financial entities.

Smart Settlement System

The Bank of Israel would provide a digital equivalent to cash, while also upgrading its existing settlement system, adding “smart” functionality, such as composability and programmability.

No Decision Made on Issuance

It’s important to note that no decision has been made regarding the issuance of a CBDC. Therefore, the design presented in the paper should be considered a preliminary one.

Global Interest in CBDCs

The central banks of almost all developed economies across the world have at least been exploring the possibility of issuing a CBDC for several years. Proponents argue that they are a tool for financial inclusion and a means of future-proofing fiat currencies against the decline in cash usage. Critics, on the other hand, see them as a Trojan horse for reinforcing state control over the use of money.

Frequently Asked Questions

• What is a central bank digital currency (CBDC)? A CBDC is a digital currency issued by a central bank, designed to be used for transactions and other financial purposes.
• What is the purpose of a CBDC? The purpose of a CBDC is to provide a digital equivalent to cash, offer improved financial inclusion, and future-proof fiat currencies against the decline in cash usage.
• Is the Bank of Israel considering issuing a CBDC? No decision has been made regarding the issuance of a CBDC. The design presented in the paper is a preliminary concept.
• How would a CBDC benefit the economy? Proponents argue that a CBDC could improve financial inclusion, increase financial stability, and provide a new tool for monetary policy.
• What are the potential risks associated with a CBDC? Potential risks include the risk of financial instability, the potential for increased surveillance, and the possibility of reducing cash usage, which could lead to a loss of financial privacy.