A team set up by the governor of the Bank of Israel has recommended that the central bank not issue digital currency in the near future. A summary of the work done by the team published by the bank on Tuesday said that "it is necessary to continue examining the field and to follow developments around the world before there are proper grounds for a decision to recommend issuing digital currency."
According to the report, "no advanced economy has yet issued digital currency for broad use," despite the fact that central banks around the world are examining the possibility of doing so, as well as using distributed technologies in the payment systems.
The bank added that the team will continue working to "study and monitor the issue," and will report to the bank’s management semi-annually about its activity and about significant developments in the field.
The interdepartmental team, which was established by the governor, Dr. Karnit Flug, in November 2017, explained that there is currently no uniform specification for central bank digital currencies (CBDC). "Its accessibility (to the entire public or only to financial institutions), the method of issuance (balanced-based or token-based), the extent of anonymity in its use, and whether it will bear interest, can all be determined," the summary read.
Among the benefits listed in the report was maintaining the public’s access to the central bank’s liability, in the event that the use of cash declines significantly, as is happening in Sweden. But the team said that it is not a relevant issue to Israel at this time.
Other motivations for issuing an e-shekel, accoring to the report, may be to support the payments system, to help to combat the unreported economy, and to advance the fintech sector in Israel.
However, the team believes those don't outweigh the risks in the issuance of CBDC. "There are expected to be quite a few material and technological difficulties and risks in the issuance of CBDC, which mainly concern the potential impact on the financial system," the bank said. "In addition, it is expected that the issuance of CBDC will have an impact on the central bank as it issues and manages cash and conducts monetary policy, and on the payments system."
The team recommended considering the possibility of holding an international workshop in the future, with the participation of parties dealing with the issue in the major central banks, in order to create a forum for learning and information sharing. "In particular, it is worth examining cooperation with the relevant international bodies, including the BIS, the OECD, and the IMF, since they have also begun working on the issue," the bank noted.