Crypto-shekel CBDC Will Appear in Israel

On March 11, the Central Bank of Israel published a plan to create an interest-bearing Central Bank Digital Currency (CBDC). The stablecoin is called BILS, but literally, it will be “digital shekel”, which will complement the country’s regular fiat currency. The partners will be the largest cryptocurrency broker in Israel, Bits of Gold.

What Will Change for Ordinary Israelis?

The two-tier model of the Central Bank Digital Currency (CBDC) is poised to revolutionize payment systems with its round-the-clock accessibility, offline functionality, rapid transaction processing, and support for multiple payments while imposing balance caps. Despite internal deliberations and uncertainties within the bank, the Bank of Israel (BoI) has set a deadline of December 2024 to unveil a design document. Stablecoins are a vital link between conventional and digital currencies, enhancing usability for everyday trade transactions. Presently, Israeli commercial banks offer a 4.86% interest rate on fiat shekel savings and deposits.

In the proposed framework for the digital shekel, commercial banks stand to benefit from interest exemption if they incorporate the CBDC into their short-term liquidity reserves, aiming to incentivize the adoption of the digital shekel. The BoI has been exploring the concept of a digital shekel since 2021, although pilot tests have yet to commence.

Such interest from the state in cryptocurrencies is a plus for the gambling industry. Now there are bookmakers (for example, Melbet) that accept bets in cryptocurrency. If countries start using cryptocurrencies as a legal payment instrument, it will become easier for gamblers to place bets this way.

What Do We Know About Cryptoshekel Today?

Last year, the Bank of Israel (BoI) anticipated that increased usage of stablecoins would pave the way for the introduction of a digital shekel. However, it was noted then that the nation needed to demonstrate a significant shift towards adopting stablecoins as a primary payment method.

The latest document outlining the ‘Israeli shekel’ reveals that the bank still has reservations about certain aspects of the Central Bank Digital Currency (CBDC). According to this document, two key distinctions are highlighted between the proposed digital shekel and existing CBDCs. Firstly, the CBDC aims to separate banks’ responsibilities in providing wallets and payment services. Users can create a CBDC wallet through their existing bank or payment provider, which offers various retail CBDC designs, with the provider facilitating immediate payment instructions and managing CBDC wallet balances. Secondly, under the BoI’s proposed system, users can create a CBDC wallet with a payment provider using open banking APIs and link multiple third-party banks for funding or defunding. Another notable feature of the suggested digital shekel is a central database containing account balance information under pseudonyms. The BoI is keen on retaining control, as it announced plans for the ‘digital Israeli shekel,’ with the central bank able to identify company balances while not having access to personal user information. It is expected that only users’ linked payment service providers can access the encrypted personal data stored in the central database.

What Will the Crypto Shekel Be Based On?

The BILS pilot program is built upon the Solana blockchain, with Fireblocks, a key contributor to the Tel Aviv Stock Exchange’s Project Eden, providing institutional-grade infrastructure for managing currency issuance. To enhance privacy, Zero Knowledge Proofs (ZKP) technology will be employed, with industry leader QEDIT assisting in establishing the project’s technology infrastructure. Additionally, EY (Ernst & Young) will advise Bits of Gold on implementing processes and controls to ensure transparency and accountability throughout the project.

Youval Rouach, co-founder and CEO of Bits of Gold, expressed pride in introducing BILS, emphasizing its role in integrating digital currencies into the Israeli economy and expanding financial accessibility. BILS represents a significant advancement, allowing anyone with internet access to engage in financial transactions without the need for a traditional bank account, furthering Bits of Gold’s mission to promote cryptocurrency access in Israel and globally.