The issuing of the digital shekel is not on the horizon. There is no target date for issuing the digital shekel and the project is still in its infancy. The main reasons for this are that it is a very complex project that would transform the financial system. It is hard to image how the financial world would function according to its needs in the coming decades, regarding the role of the banks and the financial food chain, and there are also substantial issues of privacy and security to be considered.
Yoav Sofer, who is in charge of the digital shekel project for the Bank of Israel, told the Fintech Week Tel Aviv 2022 Conference, "I agree with the concept that the digital currency must not cause damage to the banking system. After all if the central bank allows me to hold a digital currency, then who needs the banks. I'm not saying that we will fall behind, I don't have a deadline for issuing the digital shekel, and the main challenge is building it over the coming decades. But the issuance is not a question of when but still a question of if. If other countries haven't issued a digital currency then that says something."
The Eastern Caribbean Central Bank recently issued a digital currency called D-Cash but the move failed and the project has been halted. This was one of the first digital currencies issued by a central bank but for technical reasons all transactions in the digital currency were halted. As in Israel, the US Federal Reserve has published a draft model to examine issuing a digital currency and they are looking to issue a public questionnaire on a range of issues regarding central bank's digital currencies.
If the amount of human resources allocated to the subject by the Bank of Israel is anything to go by, then expectations should be lowered that we will be among the pioneers. The number of employees at the Bank of Israel handling the matter can be counted on the fingers of one hand, although the Bank of Israel is open to hearing about the experiences of people in the world of fintech. The Bank of Israel does not expect immediate solutions but is examining basic questions regarding the project in the long term.
Sofer makes it clear that the Bank of Israel is responsible for the infrastructure of the digital shekel but the platform for implementing financial transfers and use of the digital shekel will in practice be open to the involvement of the banks, and private companies from the fintech sector. He said, "We can only assume that we will not be the developers of the innovation for the infrastructure. We are not building the app but rather the operating system and the hope is that the free market will develop the design of the payments system through the central bank. Of course there will be licenses and regulation and not everyone can develop an open code but we hope that we can create the ground for the development of a system in the free market."
As revealed by "Globes," the Bank of Israel is examining an Ethereum system, which includes smart contracts, as part of a digital currency pilot. Sofer said, "Smart contracts in the world of cryptocurrencies currently serves people in industry but we are trying to think how this will be done in the digital currency system."
Published by Globes, Israel business news - en.globes.co.il - on March 23, 2022.
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