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Bank of Israel Joins the Race for CBDC Development

Israel
Israel

Israel has become the latest country to unveil plans to develop a central bank digital currency (CBDC). While no country is yet to officially announce the use of a CBDC for transactions, great strides are being made to achieve this in the near future.

The Bank of Israel is currently examining CBDCs and the possibility of them being developed on the Ethereum network. However, the bank has a long way to go before a digital shekel can become a reality.

Digital Shekel on Ethereum

The CBDC project manager at the Bank of Israel, Yoav Soffer, stated that “We did a trial with Ethereum technology, not because we think that that’s necessarily the technology we’’ use, but because it was a technology that was available for us to get our hands dirty with, in order to understand its advantages and disadvantages.”

The Bank of Israel is has launched a pilot program for the central bank digital currency, with the trial being based on the Ethereum blockchain. During the trial phase, the bank issued a token representing a digital shekel and a digital wallet to facilitate the transfer. However, this transfer was set up in a trial environment, and not publicly done on the Ethereum network.

The Bank of Israel is using the same technology that was used in the trial phases for CBDC development in Australia, Hong Kong and Thailand.

Examined Legal, Economic and Technological Aspects

During this pilot phase, the Bank of Israel also stated that it had assessed the economic, legal and technological aspects of a CBDC.

In a recent conference, Soffer stated that there were challenges to developing a CBDC. “You know when they will end and what you need to achieve along the Way. We don’t know when this project will end, with all that that implies,” Soffer stated.

Soffer also stated that the central bank would consider a model that would enable the bank to issue the digital shekels through payment providers including banks, technology companies and some NGOs. The bank further stated that its model would ensure payment providers do not hold the money.

On the other hand, the Bank of Israel faces critical challenges in its CBDC development. The first challenge is whether the digital shekel system will meet the needs of everyone. It needs to maintain simplicity to easily be used by anyone, while at the same time maintaining innovativeness.

The other challenge the bank faces is developing an advanced system built on an infrastructure that can evolve so that it will still be relevant 100 years from now.

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