Israel Unveils Digital Shekel Blueprint: A CBDC for All

The Bank of Israel has unveiled a preliminary design for the digital Shekel (DS), a potential central bank digital currency (CBDC), despite no firm plans for an official launch. The design, released by the Bank of Israel's Steering Committee on March 3, outlines the digital Shekel's supporting ecosystem, functionality, technical design, regulatory considerations, and next steps.

The central bank's committee has identified six possible motivations for issuing a digital shekel, including creating an alternative payment system and infrastructure, lowering costs, improving privacy, and supporting the government's fight against the "black economy." The latest report highlights that CBDCs can benefit the general public, stating that the DS will be available to the entire population, including children, foreigners, all types of businesses, public institutions, and financial entities.

According to the current plan, the Bank of Israel will be the sole issuer of the CBDC, and private-sector participants will help with user onboarding, converting deposits, and providing advanced financial services. Key features of the digital Shekel would include offline functionality, interoperability with other payment systems and digital asset networks, and instant settlements. The report emphasizes that the DS will be interoperable with other payment systems, allowing users to receive or pay in digital shekel even if the other party to the payment does not use the digital shekel.

As part of the process to examine and evaluate the necessary functionalities of a digital shekel, the Bank of Israel has issued a "Digital Shekel Challenge." The challenge encourages technologists and businesses to showcase various real-world use cases for an in-house CBDC. The final decision on whether to launch an Israeli CBDC will be made after 2026, based on research, public feedback, and regulatory considerations.

The Bank of Israel is collecting public feedback and suggestions on designing the CBDC until April 30, 2025. The central bank will also send Requests for Information (RFIs) to technology providers to gain CBDC implementation ideas.