Israel Unveils Digital Shekel Design: A New Era of Money
1min read The Bank of Israel has taken a significant step towards exploring the next generation of money by releasing the preliminary design for its planned central bank digital currency (CBDC), the Digital Shekel (DS). This detailed proposal provides insights into the ecosystem, functionalities, technical architecture, and regulatory considerations that the bank is considering. This move aligns with a broader trend of central banks worldwide exploring CBDCs as a means of updating their financial systems and improving payment networks.
The Digital Shekel aims to be user-friendly and inclusive, with the potential to provide cheaper, more innovative means of transaction, better payment infrastructure, strengthened privacy, and a means to fight the "black economy." The design emphasizes inclusivity, ensuring that the CBDC is available to all segments of the population, including children, foreigners, businesses, public institutions, and financial entities.
The preliminary design describes several key features of the digital shekel, including offline functionality, interoperability, and immediate clearing and settlement of payments. If implemented effectively, these features could significantly improve the user experience and expand the adoption of the Digital Shekel.
The Bank of Israel will adopt a two-tier model, issuing and supervising the new digital shekel while the private sector, including Digital Shekel Payment Service Providers (DSPPs), will onboard users and provide customer-facing services. The bank is also seeking technology and business input through the "Digital Shekel Challenge" to ensure the CBDC is practical for everyday use.
Israel is taking a gradual and cautious approach to the implementation of the Digital Shekel. A final decision on issuing the CBDC will be taken after 2026, allowing the Bank of Israel time to conduct thorough research, gather public input, and address regulatory issues. The bank is also focusing on interoperability, ensuring that the digital shekel can be used in conjunction with other payment systems and digital asset networks.
The privacy of end-users is a significant aspect of the CBDC plan. The design ensures that no information about users' balances or transactions within the digital shekel will be available to the Bank of Israel or any central entity. Only PSPs will hold user data, and certain transactions below specified limits may be made anonymously.
The proposed ecosystem includes various entities with distinct roles, such as the Bank of Israel as the sole issuer and system manager, DSPPs for user onboarding and access technology, funding institutions for converting funds between accounts and DS, and additional service providers 