Digital shekel will compete with banks for deposits, payments: Bank of Israel

Digital shekel will revolutionize the Israeli financial system, competing directly with commercial banks for deposits and digital payments, according to the Bank of Israel (BOI). In a speech given by BOI Deputy Governor Andrew Abir, he emphasized that the introduction of the digital shekel will force banks to improve their services and reduce their fees, ultimately benefiting consumers. Abir also addressed concerns about the disintermediation of commercial lenders and highlighted the importance of competition in the financial sector. To incentivize customers to keep their money with banks, the BOI plans to offer interest payments on digital shekel holdings. Additionally, the digital shekel will enable the central bank to compete with banks in the realm of digital payments, which have become increasingly dominant as cash usage declines. The BOI is taking precautions to ensure consumer protection and financial stability by launching an API-based sandbox for banks and financial companies to test the CBDC’s innovative use cases. However, it should be noted that the BOI has not made a final decision on the issuance of a digital shekel and is currently exploring its feasibility. While the digital shekel will pose competition for commercial banks, there are also other shekel-pegged stablecoins emerging in Israel that could present a challenge. One such example is BILS, launched by local exchange Bits of Gold, which aims to provide a faster, more efficient, and cheaper way to send and receive shekels, potentially rivaling the digital shekel in the market. Despite these developments, the BOI reiterated its distinction between the digital shekel and digital currencies, emphasizing that the digital shekel is issued and backed by the central bank, providing a sense of trust and transparency to users.