- Higher stablecoin adoption and less frequent use of cash will influence the decision
- If the US introduces a stablecoin, Israel might also start issuing one
The Bank of Israel is working on a project to potentially start issuing a central bank digital currency (CBDC) pending a formal decision. The central bank’s Steering Committee on the Potential Issuance of a Digital Shekel outlined various options for developing and deploying the stablecoin, which will be called the “SHAKED.”
Various factors will influence the decision
The factors influencing the decision include higher stablecoin activity, less frequent use of cash, the extent of competition in the domestic payment system, and other countries’ activities in this area.
The central bank committee expressed concern that increased adoption of stablecoins could “impair the payment system,” pointing out that stablecoins lacking a peg to the shekel could inflict damage on monetary transfers.
Use of cash is declining
Use of cash is on the decline in Israel, the committee noted, which is also among the drivers of CBDC development. People in the country are still using cash in a significant portion of transactions. However, a shift in their payment habits could lead to using central bank-issued fiat currency less often.
A CBDC could be a viable solution as the Bank of Israel does not want the above scenario. Neither does it want payments to be controlled by private entities.
Supporting competition in the payment system
The committee wrote:
Continued concentration in some segments of the domestic payments system due to the dominance of a small number of participants, incomplete competition in the deposits market, and relatively high entry barriers may justify the issuance of central bank’s digital currency in order to support competition in the payment and the financial systems in the digital era.
Other countries’ initiatives
Israel is influenced by the actions of the United States and European Union countries. If another country issues a CBDC, Israel might also decide to deploy one.
Israeli authorities follow US crypto regulation
In terms of crypto regulation, Israel seems to be following in the US’s footsteps. Israel’s securities watchdog proposed laws that would categorize cryptocurrencies as securities earlier this year, CoinTelegraph reported.
The move didn’t come without criticism. Experts blatantly opposed the proposed legislation, saying that adopting it could kill the industry.
