Israel Unveils Proposal for Shekel CBDC with Interest

Israel’s central bank has announced its support for a new digital currency called the Israeli shekel central bank digital currency (CBDC), which will have the option of bearing interest. The Bank of Israel outlined the features of the shekel CBDC in a two-tier model, including instant and 24/7 payments, multipayment support, offline usability, balance limitations, and the potential for the CBDC to earn interest. Currently, commercial banks in Israel pay 4.86% interest on customers’ fiat shekel deposits and savings. However, under the central bank’s plans, banks will be able to hold the shekel CBDC as part of their short-term liquidity buffer, but it will not bear interest. The Bank of Israel emphasized that the decisions regarding the implementation of the digital shekel system are not yet final, as there are interdependencies between its various components. The issuance of a digital shekel has been under consideration since 2021, but no concrete pilot tests have been conducted yet. The central bank previously stated that the issuance of a shekel CBDC could be considered if stablecoin usage increases, but as of now, there is no substantial adoption of stablecoins for payments in Israel.