The Central Bank of Israel is testing the feasibility of a retail central bank digital currency (CBDC). The bank has partnered with the Hong Kong Monetary Authority (HKMA) and the Bank for International Settlements (BIS) on the project, which is expected to start in the coming months.
The Bank of Israel (BOI) has been researching a digital shekel for several years now. This includes collecting public feedback on the feasibility of the CBDC, a process that began in May last year. As CoinGeek recently reported, despite overwhelming public support for the digital currency, the bank still has reservations about moving forward and has made it clear that it has not decided to go ahead. forward with development.
According to the BOI, the trial will be secured by cybersecurity and in the proposed model, financial intermediaries will not be exposed to public ownership or transfer of the CBDC. This will result in reduced cost and risk, the BOI said, as reported by Reuters.
Although he has not committed to issuing the CBDC, Bank of Israel Deputy Governor Andrew Abir said it could increase the efficiency of Israel’s payments industry.
“Providing an efficient payment system that will increase competition in the payments market is one of the main motivations we have identified for a possible issuance of a digital shekel – an Israeli CBDC,” he commented.
The trial, dubbed Project Selah, will be led by the BIS Innovation Hub’s Hong Kong Center and is expected to begin in the third quarter of the year. The results will be published before the end of the year, revealed the three participants.
The Selah project will test a two-tier model in which central banks deal directly with the consumer. This approach eliminates intermediaries such as banks. If this reduced any potential risk to them, it would also lead to disintermediation where the public might prefer to save all their money directly with the central bank. This would deprive commercial banks of the liquidity they need to operate.
Various central banks around the world are developing different ways to prevent such a situation. The European Central Bank, for example, plans to cap digital issuance of euros at $1.56 trillion, as CoinGeek reported. However, Israel’s central bank believes this approach is the way to go.
“This architecture is believed to have several benefits: less financial risk for the customer, more liquidity, lower costs, increased competition and wider access,” he said in a statement.
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