Israel launches digital shekel CBDC experiment for payments

Israel intends to expedite the development of its in-house central bank digital currency (CBDC), the digital shekel.

The Bank of Israel (BoI) plans to involve various service providers in co-developing an advanced digital payments ecosystem centered on the digital shekel. A rough translation of the central bank’s announcement read:

“As part of the action plan for the possible issuance of the digital shekel, the Bank of Israel is planning the “Digital Shekel Challenge” — an experiment inspired by the “Project Rosalind” carried out by the BIS Innovation Hub.”

Project Rosalind is a joint experimentation between the Bank for International Settlements (BIS) and the Bank of England, which aims to develop prototypes for an application programming interface.

As part of the challenge, the BoI will provide a sandbox environment attached to a layer of application programming interfaces (API). Participants will compete to build real-time CBDC payment systems for the general public.

Read Cointelegraph’s crypto guide to learn more about blockchain APIs.

Speaking to Cointelegraph, Shauli Rejwan, managing partner at Masterkey Venture Capital, a Tel Aviv-based venture capital firm, explained the initiative in detail.

The program consists of three phases: application and presentations, access to the new network for selected projects, and a final presentation to judges, some of whom have spoken at recent crypto events.

He believes the initiative could potentially bridge the gap between the Web3 industry and government, even though decentralized finance, zero knowledge and permissionless solutions are not yet being considered.

Israel invited entities from the private, public and academic sectors to participate in the experiment. The central bank added:

“Priority will be given to uses with original and innovative characteristics in the payments world, whether they are improvements to existing applications or completely new applications.”

While CBDCs are built to serve universal use cases, participants in Israel’s CBDC experiment are also allowed to build solutions for unique niches and scenarios.

Related: Israel announces plans for interest-bearing shekel CBDC

On April 16, BoI deputy governor Andrew Abir said CBDC competition with banks is good for the nation’s economy.

Abir believed that the development of a digital shekel would get support from the public.

“The digital shekel will not be developed by some anonymous Satoshi Nakamoto. Everyone will know who is behind the digital shekel and who is responsible for it — […] the same Bank of Israel that stands behind the cash we all know and trust.”

According to Abir, digital shekel could benefit the BOI as well. Just the option to hold digital shekels could incentivize banks to pay higher interest, he added.

A May 11 public consultation report confirmed Abir’s thoughts on public support for CBDC development.

“All of the responses to the public consultation indicate support for continued research regarding the various implications on the payments market, financial and monetary stability, legal and technological issues, and more.”

However, respondents unanimously raised concerns around CBDC’s potential for privacy breaches.

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