Israeli central bank official praises competition between CBDC and banks for economy

In a speech published on the Bank of Israel’s website, Deputy Governor Andrew Abir expressed a different perspective on the impact of central bank digital currency (CBDC) on commercial banks. While many have viewed it as a cause for concern, Abir believes that the banks should embrace the challenge and compete. He acknowledged that efforts to increase competition in the Israeli banking sector have yielded positive results, but there is still room for improvement. As the Bank of Israel raised interest rates to tackle inflation, credit interest rates increased, but deposit rates saw only a partial and slow rise. Abir highlighted that the digital shekel’s design allows for the option of paying interest on it. He confidently stated that the digital shekel, which is still in the planning stages, would receive public support. Abir also emphasized that the introduction of a digital shekel would benefit the Bank of Israel by increasing the availability of central bank money for digital payments, counteracting the declining trend caused by private sector technological advancements. He further suggested that the mere option of holding digital shekels could incentivize banks to pay higher interest rates, providing the central bank with a mechanism to influence the transmission of its interest rates. It is reported that the digital shekel has garnered strong support from the Israeli public.