The Bank of Israel has become the latest national bank to probe Central Bank Digital Currencies (CBDC) amid a global surge in interest in digital currency.
Various central banks have been contemplating the potential of launching CBDCs as the impact and potential of blockchain technology and cryptocurrency is felt across the global financial services sector.
In the UK, the Bank of England has been looking at the prospect of a digital pound, the US Federal Reserve has conducted research into a digital dollar, the European Central Bank (ECB) has been promoting a digital euro to European Union (EU) legislators.
Some countries are more advanced than others. Israel seems to be in the early stages of CBDC development, with the country’s central bank having chosen 14 teams to participate in its ‘Digital Shektel Challenge’.
As the name suggests, this challenge will see teams compete against each other to create use cases and development plans for an Israeli CBDC, a digital Shektel.
Bank of Israel Deputy Governor, Andrew Abir, explained: “I am pleased at the tremendous response to the Digital Shekel Challenge, and I thank the teams that have agreed to provide their time, resources, and capabilities to actively cooperate with us in the thinking, planning, and design of the digital shekel.
“We have learned quite a lot from the process thus far in building the Challenge and in discussions with the teams that have shown interest, and I am certain that we will learn much more from the case uses that will be developed by the selected participants.”
Central banks see a range of benefits in CBDCs. Some commonly raised advantages are breaking down barriers to financial inclusion and underbanking and creation of a transparent and secure means of digital payments.
CBDCs may also be seen as a way for central bank’s to compete against privately held digital currencies like Bitcoin and Ethereum. However, not everyone is onboard with CBDCs, with some seeing them as examples of government overreach. This opinion has been raised several times by US Republican politicians, including Donald Trump.
Regardless, many central banks are keen to at least investigate the advantages of CBDCs, and whether or not creation of one would be a viable option for their economies. CBDC programmes also create opportunities for fintech and payments firms, which can get involved in the process via contracts with relevant banks.
The Bank of Israel states that its Digital Shektel Challenge has ‘spared significant interest within the fintech and finance communities both in Israel and abroad’. The 14 firms involved in the project include financial companies, fintech firms, technology firms and private teams.
Abir concluded: “The digital shekel’s potential to create innovation in the payments array will depend on the private sector’s ability to leverage the platform that the Bank of Israel will build, which is what makes this Challenge so important.”