Israel is speeding up the creation of its own central bank digital currency (CBDC), known as the digital shekel. The Bank of Israel (BoI) is collaborating with various service providers to build an advanced digital payments system centered on this new currency.
The Digital Shekel Challenge
As part of their plan, the BoI has announced the ‘Digital Shekel Challenge.’ This initiative is inspired by ‘Project Rosalind,’ a joint effort by the Bank for International Settlements (BIS) and the Bank of England to develop prototypes for application programming interfaces (APIs).
In this challenge, the BoI will offer a sandbox environment with API layers. Participants will compete to create real-time CBDC payment systems for the public. Shauli Rejwan, managing partner at Masterkey Venture Capital, explained the program involves three phases: applications and presentations, access to the new network for selected projects, and a final presentation to judges, some of whom have spoken at recent crypto events.
Bridging Gaps and Inviting Innovation
Rejwan believes this initiative could help bridge the gap between the Web3 industry and the government, despite current limitations on decentralized finance and other permissionless solutions. The BoI is inviting private, public, and academic sectors to participate, prioritizing innovative uses in the payments world. These could be improvements to existing applications or entirely new ones. While CBDCs aim to serve universal use cases, Israel’s experiment allows for solutions targeting unique niches and scenarios.
Benefits and Public Support
On April 16, BoI deputy governor Andrew Abir stated that competition from CBDCs would benefit Israel’s economy. He emphasized that the digital shekel will be developed transparently by the BoI, unlike Bitcoin’s anonymous creator, Satoshi Nakamoto. Abir believes public support for the digital shekel is strong, and its development could encourage banks to offer higher interest rates.
A public consultation report released on May 11 confirmed this support, noting that respondents were in favor of continued research into CBDC’s effects on the payments market, financial and monetary stability, and related legal and technological issues. However, there were unanimous concerns about potential privacy breaches with the introduction of a CBDC.
