If Stablecoin Adoption Rises, Israel’s Central Bank might Issue a CBDC

If Stablecoin Adoption Rises, Israel's Central Bank might Issue a CBDC

The Bank of Israel is currently evaluating scenarios that could lead to the issuance of a digital shekel, or “SHAKED,” according to a recent announcement. This is part of a growing trend across the world, as more and more central banks are considering launching their own digital currencies to be used alongside traditional money.

One factor that the Bank of Israel is considering is the increased adoption of stablecoins. Stablecoins are digital currencies that are backed by traditional currencies or assets, such as gold. They are designed to minimize the volatility that is often associated with cryptocurrencies like Bitcoin, and to provide a more stable store of value. However, the Bank of Israel is concerned that the increased use of stablecoins may “impair the payment system” and potentially harm monetary transmission.

Another reason that the Bank of Israel is looking into launching a digital shekel is the decline in the use of cash. As more and more transactions are conducted electronically, there is less of a need for physical cash. Additionally, private entities are taking over digital payments, which can create a lack of transparency and control over the payments system. The introduction of a central bank digital currency (CBDC) like the digital shekel would help to address these concerns by providing a secure, transparent, and easily accessible way for people to conduct electronic transactions.

It’s not just Israel that’s considering launching a CBDC. The United States and the European Union are also exploring the idea, and their decisions could have a significant impact on Israel’s decision-making process. For example, if the US Federal Reserve were to launch a digital version of the dollar, it could put pressure on other central banks to do the same.

In light of these developments, the Bank of Israel is monitoring and evaluating the conditions for further advancement on its digital shekel. They are considering a variety of factors, including the potential benefits and drawbacks of a CBDC, the impact it could have on the broader economy, and the technical and operational hurdles that would need to be overcome.

The benefits of a digital shekel could be significant. It would provide a secure and efficient way for people to conduct electronic transactions, which would help to reduce the use of cash and improve transparency in the payments system. Additionally, it could help to boost financial inclusion by providing an easy-to-use platform for people who may not have access to traditional banking services.

However, there are also some potential drawbacks to consider. For example, the introduction of a CBDC could disrupt the existing payments system and create new security risks. Additionally, it could impact the profitability of traditional banks, since customers may opt to hold their money in a digital currency rather than depositing it in a bank.

In conclusion, the Bank of Israel’s exploration of a digital shekel is part of a larger trend towards the development of CBDCs around the world. While there are significant benefits to launching a CBDC, there are also potential drawbacks to consider. The Bank of Israel is carefully monitoring the situation and evaluating the conditions for further advancement, ultimately seeking to determine whether the creation of a digital shekel will be beneficial for the economy and its citizens.


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