At the end of 2024, the digital shekel project reached a significant milestone with the completion of a high-level design for the DS. The design document is being published today to receive feedback from the public and the professional community regarding the key features planned for the digital shekel system.
Similar to many central banks worldwide, the Bank of Israel has been exploring the possibility of issuing a Central Bank Digital Currency (CBDC) since 2017, which in Israel will be called the digital shekel (abbreviated as DS). The bank has conducted an in-depth examination of various aspects related to the implications of issuing a digital shekel in Israel and presents the results of this work in publications to the public as well as in public forums that the bank has been conducting since 2023.
At the end of 2024, the digital shekel project reached a significant milestone with the completion of a high-level design for the DS. The design document is being published today to receive feedback from the public and the professional community regarding the key features planned for the digital shekel system.
The document contains extensive and detailed information about the digital shekel ecosystem, the basic and advanced user journey, architecture and technical issues, and various aspects of policy, rules, and regulation. However, the document provides only a preliminary design – it does not describe everything necessary to enable the issuance of the DS. To bring the design to fruition – if decided – it will be necessary to further deepen the design and conduct significant processes in collaboration with many entities in the public and private sectors, as well as a substantial public information campaign.
According to the design, the DS is expected to offer a wide range of benefits to users:
It will be available to the entire public, including children, foreigners (including tourists), all types of businesses, public institutions, and financial entities.
Similar to cash, the DS will be a universal means of payment – anyone can pay anyone, and anyone can receive payment from anyone, but with the convenience and advancement of digital payments.
Basic uses of the DS for private users will be free, and for businesses, the costs of using it are expected to be significantly lower than existing digital payments.
Payment with the DS are immediate and final, and according to the design, the DS will also support offline payments, allowing smooth payments even in situations without network connectivity.
It will serve as a basis for advanced payment use cases that the private sector will be able to offer to all users – not just financial entities or those operating in virtual assets – based on the secure infrastructure of the Bank of Israel, in a competitive and open environment that prevents the creation of „walled gardens”.
The digital shekel will maintain interoperability with other payment systems, allowing payments where one side is in the digital shekel and the other, for example, in a bank account.
The digital shekel will be a liability of the Bank of Israel towards those who hold it. It will operate alongside cash and the existing range of means pf payments, and will be legal tender in Israel with a 1:1 conversion ratio to any other form of shekel, guaranteed by the ability to easily and quickly convert the DS to cash or money in an account, and vice versa. The DS will be able to be used by the general public (retail CBDC) and financial entities (wholesale CBDC), making it a multipurpose CBDC.
The DS will operate in a two-tier model, where private sector system participants play important roles. In particular, „Digital Shekel Payment Service Providers” will connect end-users to the system and enable them to operate on it. Since they do not hold the customer’s money, they do not create the financial risk associated with financial intermediation, thus allowing a wide range of entities to operate in the field under relatively light regulation, and offer innovative services in a competitive environment.
The design also presents the possibility of „Additional Service Providers” who can offer services such as budget management and advanced payment applications, with even less stringent regulation than that on Payment Service Providers. It should be emphasised that the ability to offer innovative payment services, conditional payments, and various advanced capabilities does not pertain to the money itself. The digital shekel will not be programmable money and will not contain any rules regarding its usage.
The level of privacy in the DS will be higher compared to existing digital means of payment, and similar to cash, it will also offer the possibility of anonymous payments but in limited amounts. In any case, access to personal identifiable information about the balances and activities of users in the digital shekel will not be available to the Bank of Israel or any other central entity. This information will be held by the Payment Service Providers, similar to the situation with existing digital payment methods.
Yoav Soffer – Digital Shekel Project Manager: „The Bank of Israel has not yet decided whether to issue a digital shekel, but it is important for us to prepare, and deepen the knowledge and understanding together with the ecosystem regarding each of the possible components of the digital shekel system. The design document published today consolidates a lot of work done so far, and it is important for us to receive feedback on it”.
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