The Bank of Israel is preparing to launch a sandbox environment for testing the use cases of a Central Bank Digital Currency (CBDC) known as the digital shekel. This initiative aims to refine the design of the digital shekel and ensure its capacity to facilitate advanced applications. The central bank’s deputy governor, Andrew Abir, announced that the project will be officially announced in the coming weeks. A sandbox provides a controlled environment for evaluating new digital technologies, such as financial innovations, before they are widely implemented. Governments use sandboxes to encourage innovation by allowing firms to experiment with these technologies under relaxed regulatory conditions.
The sandbox for testing the digital shekel will be API-driven, allowing financial institutions, fintech companies, and other stakeholders to collaboratively develop and test innovative applications. During a recent address, Abir described the digital shekel as a liability of the Bank of Israel to the public, similar to physical cash where possession does not involve credit risk. He also emphasized the need to distinguish the digital shekel from cryptocurrencies. Abir noted that the digital shekel will not be developed by an anonymous figure like Satoshi Nakamoto, and its stability will be different from the volatility experienced by cryptocurrencies. The value of the digital shekel will remain stable, always equal to one cash shekel, which is always worth one shekel in a bank account.
Abir further discussed the Bank of Israel’s plan to make the digital shekel accessible for a wide range of transactions, particularly in the e-commerce sector, which are currently not possible with cash. The digital shekel will operate using a two-tiered model, allowing various entities to participate as Payment Service Providers or Additional Services Providers within the platform. The central bank aims to broaden the accessibility of the platform beyond traditional banks to include payment companies, fintech firms, consumer clubs, and other participants. This approach will enable a diverse range of entities to engage with the digital shekel platform, bringing about greater innovation and efficiency in the financial ecosystem.
The implementation of a CBDC like the digital shekel holds the potential to revolutionize the way transactions are conducted, providing a secure and stable digital currency that is backed by the central bank. The controlled environment of the sandbox will allow for thorough testing and refinement of the digital shekel’s design, ensuring its functionality for a wide range of applications. By involving financial institutions, fintech companies, and other stakeholders in the development and testing process, the Bank of Israel aims to foster innovation and collaboration in the creation of innovative applications for the digital shekel platform. This initiative represents a significant step towards the future of digital currencies and their role in the modern financial system, offering a secure and reliable alternative to traditional payment methods.
In conclusion, the Bank of Israel’s sandbox environment for testing the digital shekel represents a key milestone in the development of a Central Bank Digital Currency. By providing a controlled space for testing and refining the digital shekel’s design, the central bank aims to ensure its functionality and stability for a wide range of applications. The digital shekel’s two-tiered operational model will enable various entities to participate in the platform, expanding access beyond traditional banks to include payment companies, fintech firms, and other participants. This inclusive approach will foster innovation and collaboration, leading to the creation of innovative applications that can transform the way transactions are conducted. The digital shekel project holds the promise of revolutionizing the financial ecosystem and providing a secure and reliable digital currency backed by the central bank.
