The Bank of Israel today published a summary of the work of the interdepartmental team established by the Governor, Dr. Karnit Flug, in November 2017 to examine the issue of central bank digital currencies (CBDC). The objective of the publication is to bring the work done at the Bank of Israel to the public’s attention, and to enable public discussion.
Many central banks around the world are examining the possibility of issuing digital currency and/or using distributed technology in payment systems. However, no central bank in an advanced economy has yet issued digital currency for broad use. A few central banks in developed countries are in advanced stages of examining the feasibility of issuing digital currency. In contrast, there are others that have announced that they are not planning to issue digital currency in the near future, because the payment systems in their countries are efficient and provide good alternatives.
The team’s work shows that there is currently no uniform specification for central bank digital currencies. Its accessibility (to the entire public or only to financial institutions), the method of issuance (balanced-based or token-based), the extent of anonymity in its use, and whether it will bear interest, can all be determined. The document being published presents the advantages, disadvantages and risks inherent in the various options.
The document presents the main objectives that issuing CBDC may have. One of those objectives is maintaining the public’s access to the central bank’s liability, in the event that the use of cash declines significantly as is happening in Sweden. However, this issue is not relevant to Israel at this time. Another motivation for issuing an e-shekel may be to support the payments system (including improved redundancy) and make payments more efficient. Under certain specifications, and particularly if it bears interest, the e-shekel can be an additional monetary tool, but that is not a main objective of issuing it.
Other benefits that may derive from issuing an e-shekel are that it may help to combat the unreported economy, it can be adapted to an advanced technological environment, it can help advance the fintech sector in Israel, and more. Adaptation to potential advances in this field in other countries is also an important consideration.
There are expected to be quite a few material and technological difficulties and risks in the issuance of CBDC, which mainly concern the potential impact on the financial system. In addition, it is expected that the issuance of CBDC will have an impact on the central bank as it issues and manages cash and conducts monetary policy, and on the payments system.
The team that was established will continue to study the issue. In particular, the team will continue to follow developments around the world, and particularly at other central banks, as well as relevant technological developments both in Israel and abroad.