Israel is reportedly ready to launch a project for a Central Bank Digital Currency (CBDC).
This was revealed in a report by Globes, an Israeli financial newspaper.
Israel’s path to CBDC
As early as last June, the Bank of Israel announced that it had a pilot project for a digital currency.
But at the time, Bank of Israel President Andrew Abir also put a damper on the hopes that a CBDC would eliminate banks:
“I’m sorry to tell you, but it’s not going to eliminate the banks. No central bank will introduce a digital currency for this purpose. The banks will still have an important part in the entire payment system”.
The digital shekel on Ethereum
Now, however, according to the Israeli newspaper, the Bank of Israel has decided to speed up the project by also choosing the blockchain on which to make a possible digital shekel (Israel’s fiat currency): Ethereum.
Yoav Soffer, the CBDC Project Manager at the Bank of Israel, reportedly explained why this choice was made:
“We did a trial with Ethereum technology, not because we think that that’s necessarily the technology we’ll 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”.
Israel, growing digital payments with Covid-19
As Globes also reported, this acceleration on digital currencies by the Bank of Israel would also be motivated by the growing use of digital payments that occurred with the pandemic.
According to GlobalData, digital payments in Israel will grow by 4.5% to $15 billion in 2021.
Ravi Sharma, payment analyst at GlobalData, explained:
“Robust e-commerce growth, and increased contactless payment limit are other important factors. While the COVID-19 pandemic has resulted in reduced consumer spending, it also highlighted the importance of usage of non-cash payments, which is expected to push the use of card payments in the country”.
According to Bloomberg, neighbouring Palestine also has a similar plan.
The aim is to get out of the monetary restrictions imposed by Israel, which places severe limits on large cash transfers made using the Jordanian dinar or the US dollar. According to the 1995 Oslo Accords, the Palestinian state cannot have its own fiat currency.
There has been talk of a possible digital currency in Palestine for at least four years.
In 2017, the then head of the Palestinian Monetary Authority (PMA), Azzam Shawwa, told Reuters that he was planning to release a digital currency called the Palestinian pound within five years.
Two years later, the Palestinian Prime Minister, Mohammad Shtayyeh, announced that his government was considering cryptocurrencies as an alternative to the Israeli shekel.
Then, the ever-increasing difficulties of the Palestinian economy, exacerbated by the pandemic crisis, made it impossible to pursue such a project.
But according to Bloomberg reports, in June 2021 the Palestinian state began two different studies on the development of its own digital currency.
According to Raja Khalidi, director of the Palestine Economic Policy Research Institute, the issuance of a CBDC could be a powerful political symbol of monetary independence from Israel.