Israel’s Central Bank unveils the first draft of the digital shekel

What’s new? The Bank of Israel has submitted a preliminary technical paper outlining the key features of a national cryptocurrency, including the supporting ecosystem, functionality, technical design, regulation, and next steps. That said, at this stage, the government has no clear plans to launch a digital shekel (DS).

Central Bank presentation

What else is known? The DS is a central bank digital currency (CBDC). Like other CBDCs, if the launch is decided upon, it will be issued by the central bank and represent the third form of fiat currency alongside cash and non-cash money.

The central bank previously identified six possible motives for issuing a digital shekel, among them creating an alternative payment system and infrastructure, reducing costs, improving privacy, and supporting the government’s fight against the shadow economy.

The new report also highlights that a national cryptocurrency will offer a wide range of benefits to all segments of the population, including children, foreigners, all types of businesses, government agencies, and financial institutions.

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Under the current plan, the Bank of Israel will be the sole issuer of CBDC, while private sector players will help with user connectivity, deposit conversion, and advanced financial services.

Key features of the digital shekel include compatibility with other payment systems and blockchain networks, as well as instant settlement. For example, DS compatibility will allow users to receive digital shekels or pay for goods and services with them, even if the other party to the payment does not use the asset.

As part of the process of exploring and evaluating the necessary functions of the digital shekel, the Bank of Israel has called on financial technology experts and businesses to demonstrate various real-world uses for the asset.

Israel will collect public feedback and design proposals for the CBDC until April 30, 2025. A final launch decision will be made after 2026 based on research, public feedback, and regulatory considerations.