In a speech published on the Bank of Israel’s website, Deputy Governor Andrew Abir expressed a contrasting view regarding the impact of central bank digital currency (CBDC) on commercial banks. While many have raised concerns, Abir stated that banks should be left to compete in the face of this development.
Abir highlighted the progress made in increasing competition within the Israeli banking sector, but acknowledged that there is still a long way to go. As the Bank of Israel raised interest rates to counter inflation, banks followed suit by raising interest rates on credit. However, the increase in deposit rates was slow and incomplete. Abir emphasized that the design of the digital shekel includes the option to pay interest, and he confidently predicted that the public would support this new currency.
According to Abir, the introduction of a digital shekel would also be beneficial for the Bank of Israel. It would make central bank money more accessible for digital payments, countering the decreasing use of central bank money resulting from advancements in private sector technology.
Abir further explained that even the mere option of holding digital shekels could incentivize banks to offer higher interest rates. Consequently, the digital shekel would provide the central bank with a means to influence the transmission of central bank interest rates.
The digital shekel reportedly enjoys strong support among the Israeli public.