Questions and Answers
A Central Bank Digital Currency (CBDC) is a digital form of currency issued by a central bank, akin to physical cash in the form of notes and coins. In light of technological advancements, evolving consumer habits, and the transition to digital payments, the Bank of Israel is currently exploring the potential implications and ramifications of introducing a digital currency alongside traditional cash. In Israel, should it be introduced, this currency would be known as the 'Digital Shekel.'
If introduced, the Digital Shekel will not replace physical cash. The Bank of Israel will continue to issue cash in the form of notes and coins.
The Digital Shekel is expected to provide a user experience similar to that of current digital payment methods, yet it will feature several distinctive attributes. A key characteristic is its immediacy and finality, enabling the transfer of Digital Shekels between wallets within seconds, akin to cash transactions. Other notable differences may include the ability to conduct offline transactions, a higher level of privacy compared to existing digital payment methods, and advanced functionalities supporting innovative use cases.
The Digital Shekel will be fundamentally distinct from what are commonly referred to as "cryptocurrencies." It will represent a commitment by the Bank of Israel, ensuring its value remains stable, much like physical cash. In contrast, cryptocurrencies often experience significant value fluctuations, and even those marketed as stable coins have struggled to maintain consistent stability. This volatility, coupled with the often unclear entities behind cryptocurrencies, limits their widespread adoption as a payment method.
The Bank of Israel places significant emphasis on safeguarding users of the Digital Shekel, ensuring it adheres to the highest standards of information security and protection against cyberattacks. While consumer fraud remains a risk in digital payments, users of the Digital Shekel will generally enjoy consumer protections akin to those found in existing digital payment methods. Furthermore, advanced technological systems will provide a robust security framework to help prevent fraud.
The Digital Shekel will facilitate advanced and innovative payment applications that are currently not feasible, with transactions being immediate and final. Transaction fees are anticipated to be lower than those of existing digital payment methods, and it will offer enhanced privacy. Additionally, the Digital Shekel will be capable of offline operation, be accessible to all demographics, and allow for seamless conversion between it and other payment methods.
To ensure inclusivity across all segments of the population, it is crucial to provide means for using the Digital Shekel that cater to individuals with low digital literacy. While the primary usage is expected to be through smartphones and computers, the Digital Shekel will also be accessible via various other means, such as smart cards, non-smart mobile phones, wearable devices, and more.
Many central banks around the world are investigating the concept, engaging in research, technological trials, or a combination of both. Some countries have already issued a central bank digital currency. However, no developed nation has officially declared a decision to issue such a currency.
Not in the conventional sense. While the Bank of Israel will issue the Digital Shekel, access will be facilitated by private sector 'payment service providers.' These providers will be responsible for delivering services and fostering innovation related to the Digital Shekel, granting consumers - end users - access to a digital wallet through which they can make payments in Digital Shekels.
No. Unlike some cryptocurrencies, which require complex verification processes demanding substantial computing power and electricity, the Digital Shekel will not employ such energy-intensive technologies. Its energy consumption is expected to be comparable to that of existing payment systems.