After last month, the Bank of Israel's Monetary Committee published a document specifying possible scenarios that would impact the decision to issue a digital shekel. This week, the Bank of Israel is releasing an action plan to examine the adoption of a centrally bank-issued digital currency (CBDC). The digital shekel project has been in the air for a few years now, but recently, it seems that the new currency proposed by the Bank of Israel is close to implementation.
One of the principles mentioned by the Bank of Israel in the action plan is the provision of the option to receive payments from the government through a digital shekel (allowances, refunds, payments to businesses and suppliers, wages), as well as payments (fines, bonds, taxes, etc.). This paragraph indicates that the government's special position in the economy and the public legitimacy it grants to the digital shekel will contribute to its respectability, despite being issued by the Bank of Israel.
The digital shekel will need to undergo a complex process to become a significant payment instrument in the Israeli economy, requiring widespread user adoption. It requires adoption by a large number of users for the digital shekel to yield tangible benefits for the public. One possible way to promote this principle is through an efficient and convenient payment experience that includes a secure and user-friendly interface, ensuring the availability and immediacy of payments.
Additionally, the Bank of Israel's action plan specifies features that could increase businesses' willingness to adopt the digital shekel if issued, such as promising attractive costs compared to the expenses involved in existing alternatives. The public infrastructure of a central bank's digital currency could lead to a more competitive payment environment, characterized by lower fees, particularly for businesses. In an increasingly digital economy, processes in the production and sale of products and services become automated. Manual processes like payment at points of sale and tax payments to authorities hinder digitization and the efficiency of businesses. The digital shekel could facilitate the digitization of these processes, thus encouraging many businesses to use it.
Defining the digital shekel as a "legal tender" does not require businesses to accept it, but it will help acquire the status that the public confers on cash, thus supporting its respectability. The option to make offline payments through the digital shekel also contributes to respectability since it allows its use in any situation, similar to cash, and enhances the system's credibility. Additionally, If the digital currencies issued by central banks prove to reduce the costs of cross-border payment transfers between countries, this could serve as a significant incentive for the adoption of the digital shekel.