Israel reveals potential scenarios that could lead to CBDC issuance

The Bank of Israel detailed the possible scenarios that could lead to issuing a central bank digital currency (CBDC) — digital shekel (SHAKED) —  in an April 17 statement.

According to the bank, it was preparing an action plan for the potential issuance of the currency even though it had not yet decided on whether SHAKED would be issued.

Why Israel could issue a CBDC

The Bank of Israel Steering Committee said the first reason the country could issue a CBDC is if developed countries like the U.S. or EU were to issue a digital currency. According to the bank, these countries’ decisions would be an “important factor” influencing the issuance decision in Israel.

Financial authorities in the U.S. and EU have increasingly spoken about CBDCs. European Central Bank’s (ECB) president Christine Lagarde recently warned that Central Banks could lose their relevance if they fail to adopt these digital currencies.

The Bank of Israel noted that another reason that could push it into adopting a CBDC is if there is a “decline in the legitimate use of cash and its acceptance in transactions.” The bank pointed out that cash usage might decline in the future, and there would be a need to maintain the public’s trust.

In such a scenario, the bank would be forced to adopt a CBDC to “maintain individuals’ and businesses’ ability to make transactions while minimizing the intervention of private entities.”

Besides that, another reason Israel would adopt a CBDC is if stablecoins become heavily adopted. According to the bank, a stablecoin that isn’t pegged to the national fiat currency might harm the monetary transmission.

Other factors that would influence the Bank of Israel to issue a CBDC in the future include the level of competition in its local payment system and the technological advancements made in payments.

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