In a speech published on the Bank of Israel’s website, Deputy Governor Andrew Abir challenged the prevailing concern over the impact of central bank digital currency (CBDC) on commercial banks. Instead, Abir urged the banks to embrace competition and strive to excel in the face of CBDC.
Abir acknowledged the progress made in increasing competition within the Israeli banking sector but emphasized that there is still a long way to go. While the Bank of Israel has raised interest rates to combat inflation, banks have been slow in raising deposit rates. Abir emphasized that the digital shekel, still in the planning stages, would provide an option to pay interest, a feature that he believed would garner public support.
Furthermore, Abir highlighted that the introduction of a digital shekel would benefit the Bank of Israel by increasing the availability of central bank money for digital payments. This would counter the declining use of central bank money caused by technological advancements in the private sector.
Abir also noted that the option to hold digital shekels could incentivize banks to offer higher interest rates. Consequently, the digital shekel would serve as a tool for the central bank to influence the transmission of central bank interest rates.
According to reports, the digital shekel has garnered significant support from the Israeli public.