Israel's Digital Shekel: A New Era in Payments with CBDC Experiment
Israel is accelerating its efforts to develop its own central bank digital currency (CBDC), known as the digital shekel.
The Bank of Israel (BoI) is enlisting various service providers to help build an advanced digital payments ecosystem centered around the digital shekel. In a statement, the central bank announced: “As part of the action plan for the possible issuance of the digital shekel, the Bank of Israel is planning the ‘Digital Shekel Challenge’ — an experiment inspired by the ‘Project Rosalind’ carried out by the BIS Innovation Hub.”
Project Rosalind is a collaborative initiative between the Bank for International Settlements (BIS) and the Bank of England, aiming to develop prototypes for application programming interfaces (APIs).
The Digital Shekel Challenge
In the Digital Shekel Challenge, the BoI will create a sandbox environment with a layer of APIs. Participants will compete to develop real-time CBDC payment systems for the public.
Shauli Rejwan, managing partner at Masterkey Venture Capital, a Tel Aviv-based venture capital firm, explained the initiative in detail to Cointelegraph. The program consists of three phases:
- Application and Presentations: Participants submit their proposals.
- Network Access for Selected Projects: Chosen projects gain access to the new digital payment network.
- Final Presentation to Judges: Selected projects present their solutions to a panel of judges, including speakers from recent crypto events.
Rejwan believes this initiative could bridge the gap between the Web3 industry and government, despite the current exclusion of decentralized finance, zero-knowledge, and permissionless solutions.
Inclusive Participation and Innovation
Israel is inviting entities from private, public, and academic sectors to participate in this experiment. The central bank stated: “Priority will be given to uses with original and innovative characteristics in the payments world, whether they are improvements to existing applications or completely new applications.”
While CBDCs are designed for broad use cases, participants in Israel’s CBDC experiment can also develop solutions for unique niches and scenarios.
CBDC's Potential and Public Support
On April 16, BoI Deputy Governor Andrew Abir emphasized that competition between CBDCs and traditional banks could benefit the nation's economy. Abir stated: “The digital shekel will not be developed by some anonymous Satoshi Nakamoto. Everyone will know who is behind the digital shekel and who is responsible for it — the same Bank of Israel that stands behind the cash we all know and trust.”
According to Abir, the digital shekel could also benefit the BoI by incentivizing banks to offer higher interest rates. A public consultation report from May 11 confirmed strong public support for the CBDC initiative, although concerns about potential privacy breaches were raised unanimously.
The Future of Digital Shekel
As Israel moves forward with the digital shekel, the initiative aims to create a secure and innovative digital payment ecosystem. The Digital Shekel Challenge represents a significant step in integrating advanced technology into the nation's financial system, potentially setting a precedent for other countries exploring CBDC development.
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