Israel is set to launch a test for its central bank digital currency (CBDC), known as the “digital shekel.” The Bank of Israel (BoI) announced its plans for the CBDC’s payment use case through the “Digital Shekel Challenge,” which is part of its action plan for the potential issuance of the CBDC.
Inspired by Project Rosalind, a joint initiative between the Bank for International Settlements (BIS) and the Bank of England, the Digital Shekel Challenge will provide a sandbox environment and API layer for participants to build real-time CBDC payment systems. Private, public, and academic entities are invited to collaborate on this project.
The challenge will consist of three phases: applications/presentations, access to the network for selected projects, and a final presentation to judges. The BoI is seeking “original and innovative” payment applications, whether they are improvements to existing systems or entirely new solutions.
BoI Deputy Governor Andrew Abir expressed his support for the digital shekel, emphasizing that it will be developed transparently by the central bank. He believes that collaboration between the Bank of Israel, the private sector, and the government is crucial for the success of the CBDC.
The Bank of Israel plans to launch an interest-bearing CBDC in March 2024, following extensive research and preparations since 2017. Public consultations conducted in 2021 revealed support for the digital currency research, although some individuals expressed concerns about privacy.
The BoI has previously partnered with Hong Kong’s central bank and the BIS on Project Sela, successfully testing a retail CBDC that focuses on user accessibility, competition, cybersecurity, and cash benefits. The Bank of Israel aims to provide at least the same level of privacy protection as digital payments, potentially even higher standards with the implementation of the digital shekel.