Israel CBDC Tracker

Israel is in the pilot phase. The Bank of Israel announced in 2022 that it was conducting “both theoretical analysis and practical experiments” to decide whether to launch a CBDC (referred to as the Digital Shekel).

CBDC History and Development

At the end of 2017, the Bank of Israel created a ten-person team to examine CBDCs and published the findings of the team a year later. Their findings discussed international considerations, the lack of a coherent vision for CBDCs at the time, and other issues. Ultimately, the team created by the Bank of Israel concluded that the Bank of Israel should not issue a CBDC (referred to as an e-shekel) in the near future, but that it should continue to monitor CBDC developments.

In 2021, the Bank of Israel published a report as part of an effort to “accelerate its learning, research, and preparation leading to the potential issuance of a [CBDC.]” The report discussed the following goals for any CBDC issued in Israel: support government policy to reduce the use of cash in the “shadow economy,” establish anti-money laundering compliance, update payments infrastructure, ensure stability, and improve cross-border payments.

In 2022, the Bank of Israel announced that it was conducting technological experiments. According to the release, the experiments were primarily based on testing the applicability of distributed ledger technology. The accompanying report explains the experiment at length but ultimately concluded that more research must be done.

In 2023, the Bank of Israel published a report detailing an “action plan” for the potential issuance of a CBDC in Israel, “despite the fact that a decision has not yet been made as to whether the [Bank of Israel] intends on doing so.” The report cites both declining cash use and increasing cryptocurrency use as reasons for possibly issuing a CBDC. The report also covers CBDC work abroad and technological change.

In early 2024, the Bank of Israel published a report on the architecture of the CBDC system. In short, the report suggests that the central bank would introduce an intermediated CBDC that offers instant payments, offline capabilities, interest payments, and restrictions on account balances. Later in 2024, Bank of Israel deputy governor Andrew Abir shared that the CBDC would stand in opposition to traditional and emerging finance, alike. In this same announcement, deputy governor Abir shared that the Bank of Israel would soon launch a sandbox for CBDC development.

The Bank of Israel’s Steering Committee later released its own report on the potential issuance of a CBDC. The committee flagged several factors that would influence the decision to issue a CBDC: the creation of foreign CBDCs, the decline in the use of cash, significant use of cryptocurrency, the concentration of competition in financial services, and technological developments.

In May 2024, the Bank of Israel announced the “Digital Shekel Challenge.” The challenge “is open to anyone interested in studying or experimenting with the use of a digital shekel [and] competing teams may include commercial banks, financial service providers, payment service providers, fintech firms, academic innovation labs, the public sector, nonprofits, or any other field.” The goal of the challenge is to “involve the payments ecosystem in Israel and abroad in the thought process with regard to the necessary characteristics of a digital shekel system.”

In July 2024, Bank of Israel deputy governor Andrew Abir told Reuters, “We’re all waiting for the first western central bank to pull the trigger, which is almost certainly going to be the ECB. And then you may see a rush of countries going forward with it.” However, deputy governor Abir later said, “The digital shekel’s potential to create innovation in the payments array will depend on the private sector’s ability to leverage the platform that the Bank of Israel will build, which is what makes this Challenge so important.”

At the end of October 2024, the Bank of Israel held a conference to commemorate the end of the Digital Shekel challenge which had kicked off in August and featured 14 participating companies. The central bank wrote, “The Digital Shekel Challenge and the concluding conference represent a significant milestone in the progress of the digital shekel project and the involvement of the private sector in this project.” The 14 participants included PayPal, IDEMIA, Fireblocks, Open Finance, COTI, OxPay, Brinks, Credics, Kima, Siara, Energy, QEDIT, and Shva.

Human Rights and Civil Liberties Concerns

Israel earned a 77 out of 100 in Freedom House’s 2023 Freedom in the World report. The primary concerns, as they relate to CBDCs, are the treatment of Palestinian citizens of Israel and government corruption.

According to Amnesty International, Israel has imposed an “institutionalized regime of oppression and domination against the Palestinian people.” This regime has involved segregating the Palestinian people, seizing property, restricting movements, and other inhumane acts. A CBDC could greatly worsen this treatment by giving the Israeli government the ability to identify and track individuals. Furthermore, programmable restrictions could be placed such that CBDC only work within the confines of allowed areas.

Government corruption is another major concern in Israel. Freedom House has reported that “Corruption scandals are common in all levels of government, and high-level corruption investigations are relatively frequent, with senior officials implicated in several scandals and criminal cases in recent years.” The existence of pervasive corruption is a major concern with CBDCs because it calls into question any promises that might be made by the government to limit surveillance, control, or other risks of CBDCs. Furthermore, the existence of corruption calls into question whether CBDC policies might be designed to exert political favoritism through subsidies, price controls, or other targeted restrictions.

For additional information on concerns regarding violations of human rights and civil liberties, see the following reports by Amnesty International, Financial Tyranny Index, Freedom House, Human Rights Watch, Privacy International, and the U.S. Department of State. For additional information on concerns regarding the risks of CBDCs, see the following webpage and report by the Cato Institute: The Risks of CBDCs and Central Bank Digital Currency: Assessing the Risks and Dispelling the Myths.

For additional information regarding metrics, the methodology page explains each of the data points and provides their respective sources.