Israel Holds Off on Digital Shekel, Awaits ECB’s Move on Digital Euro
The Bank of Israel (BOI) is delaying its decision on launching a digital shekel, opting to wait for the European Central Bank (ECB) to take the lead with its digital euro, according to recent statements from BOI Deputy Governor Andrew Abir.
In an exclusive interview with Reuters, Abir revealed, “We’re all waiting for the first western central bank to pull the trigger, which is almost certainly going to be the ECB. And then you may see a rush of countries going forward with it.”
This cautious approach comes despite Israel’s ongoing preparations for a potential central bank digital currency (CBDC). The BOI has been exploring the concept since 2017, ramping up its research and development efforts in November 2020. The bank has also been collaborating with counterparts in Hong Kong, Sweden, and Norway, as well as the Bank for International Settlements, on experimental projects.
One such initiative is the “Digital Shekel Challenge,” which invites both fintech startups and traditional financial institutions to demonstrate potential use cases for a digital shekel. However, Abir emphasized that these preparations do not guarantee an eventual launch, describing the current work as an “action plan” to ensure readiness if and when the bank deems it necessary.
The BOI’s hesitation reflects broader uncertainties in the global CBDC landscape. As of March 2024, 134 countries representing 98% of the global economy were exploring digital versions of their currencies. While some nations, like China, are in advanced stages of pilot programs, others, including the United States, are still in early phases of research.
A key concern for the BOI is public adoption. “The big question is whether the public will adopt a digital currency,” Abir stated, revealing that the bank is conducting a behavioral study on the subject. He stressed the importance of having “a good set of use cases” to drive adoption.
In Israel’s highly concentrated banking sector, where two large banks dominate over 60% of the market, a digital shekel could potentially “create a level playing field for payment providers and allow them to compete with the banks,” according to Abir. He also suggested that an eventual digital currency should pay interest to incentivize public adoption and create competition with bank deposits.
The BOI’s cautious stance aligns with the ECB’s approach. While the ECB has been actively researching a digital euro, it has not yet committed to its launch, citing similar concerns about adoption and impact on the financial system.
As global financial systems continue to evolve, the introduction of CBDCs could mark a significant shift in how money is managed and transactions are conducted. However, as Israel’s approach demonstrates, the path to implementation remains complex, with many central banks choosing to proceed carefully and learn from the experiences of their peers.
