The Bank of Israel (BoI) has initiated an experiment to develop its own central bank digital currency (CBDC), the digital shekel, taking inspiration from Project Rosalind conducted by the BIS Innovation Hub.
Digital Shekel Development
The BoI aims to accelerate the development of the digital shekel by involving various service providers in creating an advanced digital payments ecosystem. According to a translated announcement from the central bank:
“As part of the action plan for the possible issuance of the digital shekel, the Bank of Israel is planning the ‘Digital Shekel Challenge’ — an experiment inspired by the ‘Project Rosalind’ carried out by the BIS Innovation Hub.”
The Digital Shekel Challenge
Project Rosalind, a collaboration between the Bank for International Settlements (BIS) and the Bank of England, seeks to develop prototypes for an application programming interface (API). Similarly, the BoI will provide a sandbox environment with an API layer for participants in the Digital Shekel Challenge. Competitors will develop real-time CBDC payment systems for public use.
The challenge will unfold in three phases:
- Application and presentations
- Access to the new network for selected projects
- Final presentation to judges, some of whom are prominent figures in recent crypto events
Bridging the Gap
The BoI believes this initiative could bridge the gap between the Web3 industry and government, despite current exclusion of decentralized finance, zero-knowledge, and permissionless solutions. Entities from private, public, and academic sectors are invited to participate. The central bank emphasized:
“Priority will be given to uses with original and innovative characteristics in the payments world, whether they are improvements to existing applications or completely new applications.”
Participants can also develop solutions for unique niches and scenarios, beyond universal use cases typically served by CBDCs.
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Economic Impact and Public Support
On April 16, BoI Deputy Governor Andrew Abir stated that competition between CBDCs and banks would benefit Israel’s economy. Abir expressed confidence in public support for the digital shekel, highlighting the trust in the Bank of Israel:
“The digital shekel will not be developed by some anonymous Satoshi Nakamoto. Everyone will know who is behind the digital shekel and who is responsible for it — […] the same Bank of Israel that stands behind the cash we all know and trust.”
Abir also noted that the option to hold digital shekels could incentivize banks to offer higher interest rates.
A May 11 public consultation report confirmed Abir’s optimism, revealing broad support for continued CBDC research. Respondents acknowledged the benefits of a digital shekel but unanimously voiced concerns about potential privacy breaches.
