- Central banks around the world are examining the possibility of issuing
digital currency and/or using distributed technologies in the payment systems, but
no advanced economy has yet issued digital currency for broad use. The Bank of
Israel has also established a team to study the issue.
- The team does not recommend that the Bank of Israel issue digital
currency in the near future. It is
necessary to continue examining the field and to follow developments around the
world before there are proper grounds for a decision to recommend issuing
digital currency.
- The team will continue working to study and monitor the issue, and will
report to the Bank of Israel’s management semi-annually about its activity and
about significant developments in the field.
The Bank of Israel today published a summary of the
work of the interdepartmental team established by the Governor, Dr. Karnit
Flug, in November 2017 to examine the issue of central bank digital currencies
(CBDC). The objective of the publication
is to bring the work done at the Bank of Israel to the public’s attention, and
to enable public discussion.
Many central banks around the world are examining the
possibility of issuing digital currency and/or using distributed technology in
payment systems. However, no central
bank in an advanced economy has yet issued digital currency for broad use. A few central banks in developed countries
are in advanced stages of examining the feasibility of issuing digital
currency. In contrast, there are others
that have announced that they are not planning to issue digital currency in the
near future, because the payment systems in their countries are efficient and
provide good alternatives.
The team’s work shows that there is currently no
uniform specification for central bank digital currencies. Its accessibility (to the entire public or
only to financial institutions), the method of issuance (balanced-based or
token-based), the extent of anonymity in its use, and whether it will bear
interest, can all be determined. The
document being published presents the advantages, disadvantages and risks
inherent in the various options.
The document presents the main objectives that issuing
CBDC may have. One of those objectives
is maintaining the public’s access to the central bank’s liability, in the
event that the use of cash declines significantly as is happening in Sweden. However, this issue is not relevant to Israel
at this time. Another motivation for
issuing an e-shekel may be to support the payments system (including improved
redundancy) and make payments more efficient. Under certain specifications, and
particularly if it bears interest, the e-shekel can be an additional monetary
tool, but that is not a main objective of issuing it.
Other benefits that may derive from issuing an
e-shekel are that it may help to combat the unreported economy, it can be adapted
to an advanced technological environment, it can help advance the fintech
sector in Israel, and more. Adaptation
to potential advances in this field in other countries is also an important
consideration.
There are expected to be quite a few material and
technological difficulties and risks in the issuance of CBDC, which mainly
concern the potential impact on the financial system. In addition, it is expected that the issuance
of CBDC will have an impact on the central bank as it issues and manages cash
and conducts monetary policy, and on the payments system.
The team that was established will continue to study
the issue. In particular, the team will
continue to follow developments around the world, and particularly at other
central banks, as well as relevant technological developments both in Israel
and abroad.