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Bank of Israel Deputy Governor Andrew Abir reportedly said that Israel has conducted a pilot test of a digital shekel central bank digital currency (CBDC). However, a more recent Bloomberg report implies that it's actually an Ethereum-based proof of concept test. https://www.jpost.com/jpost-tech/israel-has-already-tested-a-digital-shekel-cryptocurrency-671639

Israel has reportedly begun development of an Ethereum-based digital shekel. Bank of Israel Deputy Governor, Andrew Abir confirmed that a CBDC was in the works and that testing had taken place, but also admitted the pilot program has been met with some challenges. One of the biggest challenges was overcoming potential user privacy concerns and ensuring that the people will use it, as Israelis are still not that keen to completely dump physical cash.

The Bank of Israel published a "Payment Systems Access Guide" that aims to provide information to nonbank entities, including fintechs, interested in participating in the core supervised payment systems alongside traditional banks. Its purpose is to present these entities with a comprehensive overview of the various options available for operating within the payment systems in Israel, along with the associated conditions and requirements. The guide seeks to facilitate the decision-making process and the joining procedures for these entities.

Andrew Abir, Deputy Governor of the Bank of Israel (BOI), floated the idea of a remunerated digital shekel, as a way to push banks to up their games. "We could consider that the digital shekel, which will be built to be able to pay interest directly on the public's holdings, would actually do that. Of course, we will need to think about this carefully - for example, by setting it at a lower level than the Bank of Israel policy interest rate, and/or by limiting the types of users who will be eligible for it and the maximum amount on which interest would be paid."

The Bank of Israel (BOI) is inviting anyone (from Israel or abroad) interested in studying or experimenting with the use of a digital shekel to submit a request to join the Digital Shekel Challenge. Preference will be given to uses with innovative characteristics in the payments market, whether they are improvements to existing applications, or completely new applications. Contestants will be asked to technologically develop various use cases for the digital shekel, by using the application programming interface (API) layer at the center of the proposed two-tier central bank digital currency (CBDC) model. The API layer provides functionalities that enable service providers to connect to the digital shekel system and offer end users among the public a wide and innovative range of services, while maintaining end users' privacy and the security and reliability of the payment system.

The Israel Securities Authority (ISA) and the Israel Innovation Authority (IIA) have introduced a "Data Sandbox" program for Fintech firms that will help them work cooperatively with regulators, licensed entities, and other financial services providers based in the country.

The Bank of Israel is accelerating its study, research and preparation for the possible issuance of a digital shekel aimed at creating a more efficient payments system. Governor Amir Yaron said that, similar to other central banks, the Bank of Israel had not yet decided whether it will issue central bank digital currency (CBDC) and was still examining the issue. "Central banks have a unique role to play in preventing fragmentation and ensuring that the payment system becomes even more uniform and efficient. One way to do this is through CBDC."

The Bank of Israel outlined potential scenarios for deciding to issue a digital shekel central bank digital currency (CBDC), although a decision has not yet been made as to whether the Bank intends on doing so. One scenario would be if  the United States or the European Union were to decide to issue CBDC, or a significant number of other developed economies. Other scenarios include a decline in the legitimate use of cash and its acceptance in transactions in Israel, significant penetration of stablecoins or other private means of payment that would be broadly used, and continued and growing concentration in key segments of the domestic payments system.

The Bank of Israel (BOI) has chosen 14 teams from the private and public sectors, and academia to study potential use cases for a digital shekel. The use cases that were selected by the BOI deal with a variety of functions: connectivity between the digital shekel, other payment systems, and cash; use of the advanced functionalities offered by the digital shekel, such as subwallets, conditional payments, and split payments; and the implementation of various technologies while using the digital shekel as a means of payment. Participant proposals will be tested in a digital sandbox in August 2024, with products developed to be showcased at a concluding conference at the end of October 2024.

The Bank of Israel has decided to accelerate its research and preparations for a possible future launch of a digital currency. A steering committee set up by the bank has issued a report outling the potential benefits, a draft model and issues to examine, accompanied by a public call for responses. The draft model envisages a two-tier framework in which the central bank provides digital shekels to private sector payments providers who would then act as the interface to the general public. https://www.boi.org.il/en/NewsAndPublications/PressReleases/Pages/11-5-21.aspx

The Palestinian Monetary Authority is reportedly studying the possible issuance of a central bank digital currency (CBDC). Bound by 1990s accords with Israel, Palestine does not have a currency of its own. Instead, the Israeli shekel serves as the de facto currency, alongside the Jordanian dinar and the U.S. dollar. Palestinian banks are prohibited from making large cross-border cash transfers - including to Israel - and are often forced to borrow money to cover remittances. It is hoped that a Palestinian CBDC may address that issue.

The Bank of Israel has received public support for its plans to possibly issue a digital shekel on grounds it would help the economy by supporting innovation in the payments system, reducing the amount of cash and bolstering the fintech sector. Although the central bank has not made a final decision on whether it will issue a digital shekel, all of the responses to the public consultation indicate support for continued research regarding the various implications on the payments market, financial and monetary stability, legal and technological issues, and more. Some want full anonymity like cash, while others believe a digital shekel should be subject to money laundering rules and helping the war on the "black economy." Also, a digital shekel should also come at a zero or low costs to business owners and consumers and be easy to use for all, including the elderly.

The Bank of Israel published an update on their CBDC proof-of-concept (PoC) experiments, including some that were based on distributed-ledger technology (DLT) infrastructure on the cloud, and the application of a Quorum blockchain based on Ethereum. They also examined a platform developed by VMware in which there would be a wallet that can hold "ordinary" digital shekels, the transfer of which is recorded in the ledger, and "private" digital shekels, the transfer details of which are not recorded openly, and where both sides to the transaction enjoy complete privacy as with cash payments. There would be a periodic (e.g., monthly) "budget" for payment using private shekels.

The Bank of Israel (BOI) remains committed to plans for a digital shekel currency to improve Israel's payments system and foster innovation, but is unlikely to launch one ahead of other advanced economies, according to Deputy Governor Andrew Abir. He wants an eventual central bank digital currency (CBDC) to pay interest to create competition with bank deposits and provide an incentive for the public to hold it. It will operate in a two-tier model, with a wide range of participants providing services on the digital shekel platform, including banks, plus other payment companies, fintech or Bigtech companies, consumer clubs, and retail entities. Participants will support regular payment use cases, plus advanced and innovative use cases. https://www.boi.org.il/en/communication-and-publications/speeches-and-presentations/9-7-2024en/

The Bank of Israel (BoI) published a paper on how to ensure that a potential central bank digital currency (CBDC) is broadly adopted. The characteristics that should increase digital shekel adoption and network effects among users include (i) making it possible to receive (make) payments from (to) the State, (ii) providing an efficient and convenient payment experience, and (iii) making it broadly useful  for payment between individuals (P2P) including offline. Also, costs to merchants should be less than existing alternatives, and should streamline their operational processes such as the payment of taxes. In addition, defining a digital shekel as "legal tender" will help provide the currency with the status that the public attributes to cash, and thereby support its broader acceptance.

The Bank for International Settlements (BIS) and the central banks of Israel, Norway and Sweden are launching Project Icebreaker, a joint exploration of how central bank digital currencies (CBDCs) can be used for international retail and remittance payments. using a hub-and-spoke model. The project will run through the end of the year, with a final report expected in the first quarter of 2023.

Central banks of Israel, Norway and Sweden team up with the BIS to explore retail CBDC for international payments

The BIS Innovation Hub, the Bank of Israel and the Hong Kong Monetary Authority will join forces to test the feasibility of a cyber secure two-tier retail central bank digital currency (CBDC) in which intermediaries are "exposure-less". Intermediaries in "Project Sela" will have technological access to the CBDC system, conduct the know your customer (KYC) processes, and provide consumer services, but are not financially exposed, at any point of the processes of obtaining, transferring, or redeeming CBDC. This architecture is assumed to have several benefits: less financial risk for customers, more liquidity, lower costs, increased competition, and wider access, plus  enhanced resilience to sophisticated cyber attacks.

The Bank of Israel (BoI) published a paper that examines architecture alternatives for implementing the two-tiered central bank digital currency (CBDC) business model. The paper focuses on the types of participants in the system, the functional distribution between the participants in providing an end-to-end solution, the distribution model to end users; and back-end layer-or system "engine"-managed by the central bank. It concludes that the optimal model is an indirect distribution model, in which the central bank distributes CBDC to the institutions that manage end user's accounts, and those will support distribution to the end users.

The Tel Aviv Stock Exchange (TASE) published a detailed report on the proof-of-concept it ran with Israel's Ministry of Finance to issue a DLT-based government bond as a security token. The trial, conducted in May 2023, involved issuing the bond to a dozen banks as primary dealers. Potential benefits demonstrated included transparency (all market participants have the same visibility and can track the issuance), and accessibility (it's easier to onboard investors). Although it found that atomic settlement eliminated counterparty risks, it requires more cash, although atomic settlement can be simultaneous without being instant.