Israel starts digital shekel pilot

The Bank of Israel is launching the Digital Shekel Competition, inviting various industries to develop applications for a potential central bank digital currency.

The Bank of Israel has announced the “Digital Shekel Challenge,” an initiative aimed at exploring the potential development and applications of central bank digital currency (CBDC), this time using digital currency, also known as digital shekels.

According to a press release shared with Crypto.news, the Bank of Israel wants to test the digital currency through a technological prototype that simulates the core system and API layer of the digital shekel. The prototype allows payment service providers and other stakeholders to access the system and develop services for the public, offering news payment options with digital shekels.

“The success of the digital shekel will depend on cooperation between the Bank of Israel, the private sector and the government. “With this challenge, we allow the financial sector, both in Israel and abroad, as well as a wide range of payment stakeholders, to practically engage with us in the thinking, planning and design of the digital shekel.”

Bank of Israel Deputy Governor Andrew Abir

Participants in the pilot will be tasked with developing various use cases for the digital shekel using the API layer. The central bank says priority will be given to “original and innovative” payment applications, whether improving existing systems or introducing completely new solutions.

Shauli Rejwan, founder and managing partner of crypto investment fund Masterkey VC, said Bank of Israel will likely focus on solutions that power micropayments, digital trusts and data products. He also added that the program will consist of three phases: applications and presentations, access to the new network for selected projects, and a final presentation to judges, “some of whom have spoken at recent crypto events.”

“This initiative is an important step for the Israeli ecosystem and potentially bridges the gap between the web3 industry and the government. [decentralized finance] and permissionless solutions are not yet being considered.”

Shauli Rejwan

The Bank of Israel launched an exploratory study on the digital shekel in 2017, examining the potential benefits and challenges of issuing CBDCs. The preliminary phase focused on understanding global trends in digital currencies, technological feasibility, and potential impact on monetary policy and financial stability. In 2021, the Bank of Israel stepped up its efforts by creating a special task force to further research and develop the digital shekel.