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Andrew Abir: Bank of Israel Explores CBDCs Amid Declining Cash Usage

Transition from traditional cash to digital payments in Israel

At a recent conference, Deputy Governor Andrew Abir of the Bank of Israel outlined the challenges facing traditional cash and the potential role of a central bank digital currency in revitalizing competition within the financial sector.

Key takeaways:

  • Traditional cash usage has declined due to digital payment methods, according to Bank of Israel's Deputy Governor, Andrew Abir.
  • The Bank of Israel is testing a digital shekel in a newly announced API-based sandbox to foster financial innovation and competition.

During his address at the "Engines of the Israeli Ecosystem" conference on April 16, Andrew Abir, Deputy Governor of the Bank of Israel, articulated the challenges traditional cash faces in an increasingly digital economy. Abir noted: 

"Traditional cash was once competitive with other payment methods, but its role has eroded because of technological limitations as finance becomes increasingly digital." 

This shift underscores the growing need for modernized solutions in financial transactions.

Abir also announced the launch of a new sandbox environment aimed at exploring the functionalities of the digital shekel. This initiative will allow financial entities, fintech companies, and other stakeholders to develop and test various use cases for the digital currency, potentially paving the way for its broader adoption.

Potential of the digital shekel and future considerations

The digital shekel's versatility was highlighted as a significant advantage, enabling it to compete effectively with other digital payment systems that have gradually sidelined cash.

Abir explained:

"The digital shekel’s versatility will allow it to compete with other digital payment methods that have sidelined traditional cash in recent years," 

Furthermore, the digital shekel could catalyze increased financial competition, providing a platform for Payment Service Providers or Additional Services Providers to innovate and compete.

Despite the promising developments and positive outlook on the digital shekel, the Bank of Israel remains cautious. The institution has not yet confirmed the official launch of a digital shekel as of April 2024, stating that "a plan of action will be prepared that can be put into action in the future if conditions warrant it." This careful approach reflects the bank's need to balance innovation with the potential costs and risks associated with issuing a CBDC.

Past initiatives, such as "Project Sela" and "Project Icebreaker," have explored the technological and functional aspects of CBDCs, particularly in contexts like cross-border payments, further indicating the central bank's interest in understanding and potentially integrating digital currencies into the Israeli financial landscape.