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The Central Bank of Israel has a clear look at the digital version of the country’s legal tender. According to the released token “draft model”, Israelis should be able to use digital shekels to make payments, even offline, and convert them into cash at any time. The Central Bank of Israel Digital Currency (CBDC) will provide some confidentiality, but not anonymity.
After years of research, the Bank of Israel is preparing to jump out of the CBDC wave and plan to issue its own digital currency. In response to the development of the payment market, dozens of central banks around the world are already carrying out similar projects, which are not only related to the growth and spread of cryptocurrencies. According to a report from the bank’s steering committee, a final decision has not yet been made, but the project has taken shape. The published draft opened the door for public discussion and suggestions.
At this stage, the central bank’s intention is to create a “digital promise” on its behalf, similar to its “physical promise” to the public in the form of banknotes and coins. Cash is different from money in commercial banks, and it is also different from money stored in bank accounts for transfers and bank cards. The latter is recorded digitally, representing the obligations of commercial banks to their customers and not to the central bank, the business news media Calcalist in the relevant article.
Israel’s CBDC will also be digital, but its concept is different from commercial bank funds. The “digital shekel” will be a form of electronic cash, representing the digital commitment of the Bank of Israel to its citizens. According to the document, Israelis will be able to convert digital currency into actual paper money and commercial bank currency at any time, and their transactions do not necessarily need to be connected to the Internet.
Digital Shekel’s payment infrastructure will be similar to existing digital wallets and payment applications. According to the plan, the Bank of Israel will launch CBDC and transfer it to payment service providers such as banks, credit card issuers, fintech companies, and even large high-tech companies, which in turn will provide digital shekels to their customers. However, these entities will not be allowed to lend in digital currency.
The central bank has not yet decided whether to use a centralized model to issue its digital currency or use a decentralized system, which relies on distributed ledger technology (DLT). In any case, the important difference with cryptocurrency is that although the digital shekel will ensure a certain degree of privacy for its users, its transactions will not be anonymous. The government actually hopes that digital coins will help reduce the use of paper money and shrink the shadow economy. The Bank of Israel stated:
Although the central bank may use DLT such as blockchain when designing and establishing a CBDC system, there is an essential difference between CBDC and cryptocurrencies such as Bitcoin.
The Bank of Israel Steering Committee also outlined several major benefits that the digital shekel can bring to the Israeli economy. Its members believe that this token will provide an advanced and safe alternative that will function normally even during emergencies or malfunctions. It will also ensure that the country’s payment system adapts to the needs of the digital economy and create an efficient and cheap infrastructure for cross-border payments.
What do you think of Israel’s plan to launch a digital shekel? Share your thoughts on this topic in the comments section below.
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