Israel begins experiment with digital shekel CBDC for payments
Israel plans to accelerate the development of its own central bank digital currency (CBDC), the digital shekel.
The Bank of Israel (BoI) plans to engage various service providers in co-developing an advanced digital payments ecosystem centered around the digital shekel. A rough translation of the central bank’s announcement is as follows:
“As part of its action plan on the possibility of issuing digital shekels, the Bank of Israel is planning the “Digital Shekel Challenge”, an experiment inspired by the “Rosalind Project” conducted by the BIS Innovation Hub.
Project Rosalind is a joint experiment between the Bank for International Settlements (BIS) and the Bank of England, aimed at developing a prototype for an application programming interface.
As part of the challenge, BoI will provide a sandbox environment connected to the application programming interface (API) layer. Participants will compete to build a real-time CBDC payment system for the general public.
To learn more about blockchain APIs, read Cointelegraph’s cryptocurrency guide.
Shauli Rejwan, managing partner at Tel Aviv-based venture capital firm Masterkey Venture Capital, detailed the plan in an interview with Cointelegraph.
The program consists of three stages: application and presentation, access to new networks for selected projects, and a final presentation to judges who spoke at recent cryptocurrency events.
He believes this initiative could potentially bridge the gap between the Web3 industry and governments, even though decentralized finance, zero-knowledge and permissionless solutions have not yet been considered.
Israel invited private, public and academic groups to participate in the experiment. The central bank added:
“Priority will be given to uses with a unique and innovative character in the world of payments, whether they are improvements to existing applications or completely new applications.”
Although CBDCs are built to serve universal use cases, CBDC experimenters in Israel can also build solutions for unique niches and scenarios.
Related: Israel Announces Interest-Breaking Shekel CBDC Plan
On April 16, BoI Deputy Governor Andrew Abir said CBDC competition with banks was good for the country’s economy.
Abir believed that the development of a digital shekel would gain public support.
“The digital shekel will not be developed by the anonymous Satoshi Nakamoto. Everyone will know who is behind the digital shekel and who is in charge. (…) It is the same Bank of Israel behind the cash we all know and trust.”
According to Abir, the digital shekel could also benefit the BOI. He added that the mere option of holding digital shekels could encourage banks to pay higher interest rates.
A public consultation report on 11 May confirmed Abir’s thoughts on public support for CBDC development.
“All responses to the public consultation indicate support for ongoing research on the various implications for payments markets, financial and monetary stability, legal and technical issues, etc.”
However, respondents unanimously raised concerns about the potential privacy violations of CBDCs.
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