Israel Unveils Proposal for Shekel Central Bank Digital Currency with Interest

Israel’s central bank has announced its support for a new digital currency, known as the Israeli shekel central bank digital currency (CBDC), which will have the option of bearing interest. The Bank of Israel revealed that the shekel CBDC will be implemented using a two-tier model, offering instant and round-the-clock payments, multipayment support, offline accessibility, balance limitations, and the potential for interest-bearing capabilities. Currently, commercial banks in Israel provide 4.86% interest on their customers’ fiat shekel deposits and savings. However, under the central bank’s plan, banks will be able to include the shekel CBDC in their short-term liquidity reserves, which will not bear interest. The researchers emphasized the need for a data structure that is able to meet all the requirements outlined in Section 2.1, including the enforcement of holding restrictions and the application of interest. They also highlighted the benefits of having a centralized database, particularly when the interest is dependent on the user’s type and balance size. Israel has been considering the introduction of a digital shekel since 2021, but no tangible pilot tests have been conducted thus far. The Bank of Israel stated that the decisions regarding the digital shekel system are not yet final due to the interdependence of its various components. In April 2023, it was reported that the country’s central bank may issue the shekel CBDC if the usage of stablecoins increases. However, the central bank noted that there is currently no significant adoption of stablecoins as a payment method in Israel. In related news, the local Web3 community has launched “Crypto Aid Israel” to provide assistance to displaced citizens.