Israel’s central bank has announced its support for a new digital currency called the Israeli shekel central bank digital currency (CBDC), which will have the option of bearing interest. In a statement released on March 11, the Bank of Israel outlined the features of the shekel CBDC, stating that it will operate on a two-tier model with various functionalities such as instant and 24/7 payments, multipayment support, offline usage, balance limitations, and the potential for interest-bearing capabilities.
Currently, commercial banks in Israel offer 4.86% interest on customers’ fiat shekel deposits and savings. However, under the central bank’s plans, banks will be able to include the shekel CBDC in their short-term liquidity buffer, but it will not bear interest.
Researchers working on the project emphasized the importance of a data structure that can accommodate the system’s requirements, including the ability to enforce holding restrictions and apply interest. They also highlighted the advantage of having a centralized database, particularly when interest rates depend on the user’s type and balance size.
Israel has been considering the issuance of a digital shekel since 2021, but no pilot tests have been conducted yet. The Bank of Israel stated that the decisions regarding the digital shekel system are not yet final due to its interdependent components.
In April 2023, Cointelegraph reported that the central bank could introduce the shekel CBDC if there is a significant increase in stablecoin adoption for payment purposes. However, the central bank stated that there are currently no indications of substantial stablecoin usage in Israel.
In related news, the local Web3 community has launched “Crypto Aid Israel” to assist displaced citizens.