Bank of Israel in the Forefront of (Studying) Digital Currency

The Bank of Israel said on Monday that it intends to speed up its examination of the possibility of creating a digital currency, saying it intends to be in the forefront of the new technology while stressing that no decision has been made yet.

Governor of the Bank Amir Yaron outlined the reasons for going digital at a BoI-hosted conference in Tel Aviv:

“At the root of the dilemma whether to issue a Bank of Israel digital currency lie several motivations: creating an efficient, advanced and secure alternative to existing and new means of payment in the digital era; creating an innovative infrastructure that will ensure that the payments system is adapted to the needs of the digital economy; building redundancy into the payments system to ensure that it will operate properly during an emergency or in the event of a breakdown; creating an efficient and cheap infrastructure for cross-border payments; preserving the facility for the public to make use of digital payments while maintaining privacy; and support for the government’s policy of reducing the use of cash,” he was quoted as saying by Globes.

Yaron also sketched a not-so-short list of the imponderables:

“It’s important to note that the issue of a digital currency, certainly if it is not carefully designed, is also liable to involve substantial risks. The main risk is damage to the possibility of financial mediation, disintermediation. If the public chooses to convert a large part of its deposits to the digital shekel, the ability of the banks to fulfill their basic function of mediating between borrowers and savers and credit providers is liable to be harmed in a way that will cause significant damage to the economy. The digital shekel is also liable to have effects on monetary transmission. Unless the system is meticulously designed, it is also liable to give rise to cyber risks, risks to privacy, and risks to the reputation of the central bank.”

But, said Yaron, the Bank has resolved to plunge boldly ahead, “to accelerate its study, research and preparation with a view to the possible future issue of a digital currency, while providing a response to the various risks.

However, on a final word of caution, he added: “It’s important to stress: like many other central banks, the Bank of Israel has not yet decided whether it intends to issue a digital currency, and we are still examining the matter. We are committed to being at the forefront of financial and technological knowledge in this area.”