Israel is accelerating the development of its central bank digital currency (CBDC), known as the digital shekel.
The Bank of Israel (BoI) plans to collaborate with various service providers to create an advanced digital payments ecosystem centered on this currency.
In a statement, the central bank announced the “Digital Shekel Challenge,” inspired by the “Project Rosalind” from the BIS Innovation Hub.
Project Rosalind is a joint effort between the Bank for International Settlements (BIS) and the Bank of England to develop prototypes for an application programming interface (API).
The BoI will provide a sandbox environment with a layer of APIs as part of the challenge. Participants will compete to develop real-time CBDC payment systems for the public.
Shauli Rejwan, managing partner at Masterkey Venture Capital, explained the initiative’s details to Cointelegraph.
The program consists of three phases: application and presentations, access to the new network for selected projects, and a final presentation to judges, including notable figures from recent crypto events.
Rejwan believes this initiative could bridge the gap between the Web3 industry and the government, despite the current exclusion of decentralized finance, zero knowledge, and permissionless solutions.
Israel has invited entities from private, public, and academic sectors to join the experiment. 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.”
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While CBDCs are designed for universal use, participants in Israel’s experiment can also develop solutions for specific niches and scenarios.
On April 16, BoI deputy governor Andrew Abir expressed that competition between CBDCs and banks benefits the economy.
He believes public support for the digital shekel is strong.
“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 noted that the digital shekel could also benefit the BoI by encouraging banks to offer higher interest rates.
A public consultation report from May 11 confirmed Abir’s views, showing broad support for CBDC research.
However, respondents unanimously expressed concerns about potential privacy breaches.
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