FameEX Hot Topics | Israeli Central Bank Considers Issuing CBDC in Response to Rise of Stablecoin Adoption

The Bank of Israel Steering Committee on the Potential Issuance of a Digital Shekel provided possible scenarios for the development and deployment of a CBDC, a digital shekel called “SHAKED.” In its report released on April 17, the committee presented various scenarios that could lead to the issuance of a digital shekel. One of the potential drivers of CBDC development is the increased use of stablecoins. The report stated that increased adoption of stablecoins may "impair the payment system," noting that stablecoins not pegged to the shekel "might also harm the monetary transmission." Although there are no significant signs of stablecoin adoption as a means of payment in Israel, a major private sector entity's issuance could quickly change the public's payment habits. Thus, the Bank of Israel is considering issuing a CBDC to prevent private entities from controlling payments and to support competition in the payments and financial systems in the digital era.

Another factor that could lead to the issuance of a digital shekel is a decline in the use of cash in Israel. The report mentioned that cash is still used in a considerable portion of consumer transactions in the country. However, a shift in the public's payment habits may result in a move away from using central bank fiat. In this case, the Bank of Israel sees a CBDC as a potential solution.

The Bank of Israel Steering Committee also stated that it would consider issuing a CBDC to keep up with the U.S. and European Union, which are also exploring the possibility of issuing CBDCs. If either of these regions issues a CBDC, it could influence Israel's decision to deploy one. The committee concluded that it is closely monitoring the situation to prepare for the advancement of the digital shekel. Israel's approach to crypto regulation appears to be in line with the United States, as earlier this year, the country's securities regulator proposed legislation that would classify crypto assets as securities. However, this has raised concerns in the industry, with some executives worrying that it could "kill the industry."

Overall, the Bank of Israel is considering the issuance of a digital shekel in response to several potential scenarios, including the increased use of stablecoins, a decline in cash usage, and the need to remain competitive with other countries exploring CBDCs. The committee is closely monitoring the situation to prepare for the potential issuance of a digital shekel.

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