The Bank of Israel has concluded a cross-border currency payment platform project together with other central banks as it evaluates the potential issuance of a digital shekel.
As part of the project dubbed Icebreaker, the Bank of Israel, together with the central banks of Norway and Sweden and the Bank for International Settlements (BIS) Innovation Hub, examined the potential benefits and challenges of using so-called retail central bank digital currencies (CBDC) in international payments to create a hub to interlink domestic systems across borders.
As digitalization in the global financial system develops rapidly, the Bank of Israel has over the past few years started preparations for an eventual launch of a digital currency, to have a plan ready if conditions develop that lead the central bank to believe that the benefits of such a currency outweigh the costs and potential risks.
According to the Times of Israel, The Bank of Israel’s CBDC project manager Yoav Soffer noted, “Early on in our work on the digital shekel we wrote: ‘As part of the G20 roadmap for improvement of cross-border payments… the ability of CBDCs to streamline and lower the costs of these payments will be examined….
If such a global infrastructure is actually developed, a Bank of Israel digital currency will improve cross-border payments for Israelis.’” “Well, today we are one step further towards this goal,” Soffer, wrote in a LinkedIn post.
Central banks around the world are pondering whether in the near or distant future they will have to provide the public with another form of currency — digital money – as cross-border payments still face challenges such as high costs, low speed, limited access and insufficient transparency.
Digital money already exists, in a way: the money the public holds in banks, which it pays from via bank transfers, payment cards and payment apps. The retail CBDC that is being considered now would give households and businesses access to use the Bank of Israel’s digital money in addition to physical cash.
This would constitute a liability of the central bank toward the holder of the currency, as opposed to a liability of a commercial bank toward the user of the currency as is the case with payments today.
“If Israel is to issue a digital shekel, it would be very important that we do it according to the evolving global standards, so that Israelis could use it also for efficient and accessible cross-border payments,” stated Bank of Israel deputy governor Andrew Abir. “While there is still much work ahead of us for the Icebreaker model to become a global standard, the learnings from this successful project have been very important for us and for the central banking community.”