In Brief:
- The Central Bank has worked on digital wallets for exchanging “imaginary digital shekels” within the bank
- It is worth noticing that for this purpose, Ethereum is being used on a closed network .
- Australia, Hong Kong, and Thailand used the same methodology in their CBDC projects.
As the popularity of digital currency is growing exponentially, many countries including Israel are conducting a pilot study on its Central Bank Digital Currency (CBDC). In a report by “Globes”, the Bank of Israel talks about a few challenges in its pilot study with the Ethereum system for its CBDC.
However, the bank says it is yet to decide the technology to be chosen to issue its “digital shekel.” The Bank of Israel created teams to set up a trial running on the Ethereum blockchain and also issued a token representing CBDCs. Thereafter, it worked on digital wallets for exchanging “imaginary digital shekels” within the bank. Israel is also examining the legal, economic, and technological aspects of this feat.
In June, Israel had first announced to use the Ethereum blockchain for its crypto ambitions. It is worth noticing that Ethereum is being used on a closed network for this purpose. Interestingly, Australia, Hong Kong, and Thailand used the same methodology in their CBDC projects.
Yoav Soffer, CBDC project manager at the Bank of Israel remarked, “We did a trial with Ethereum technology, not because we think that that’s necessarily the technology we’ll use, but because it was a technology that was available for us to get our hands dirty with, in order to understand its advantages and disadvantages.”
At the central bank’s digital currency conference – Innovation, Opportunities and Challenges – held last week, Soffer added, “In general, projects at the Bank of Israel have start and finish dates. You know when they will end and what you need to achieve along the way. We don’t know when this project will end, with all that that implies.”
Challenges:
In spite of all the rosy coloured scenarios, the central bank of Israel says it has to grapple with a few challenges ranging from financial, technical, and even moral ones.
For the Bank of Israel, two of the most serious aftermaths of Covid 19, were connected to infrastructure and people’s habits in using payment methods. This also involves the construction of a “long term, robust infrastructure” that could take care of payment methods for 100 more years. In case of emergency or a breakdown of the network, people must be able to sort out transactions even offline.
The other risk is that the central bank’s reputation would be at stake in case the implementation of digital currency fails. And if it becomes successful, it would pose danger to the commercial banks as a large number of people would adopt digital currency; thus harming Israel’s “financial mediation.” To grapple with this, the steering committee compiled a list of justification for its digital move that includes the “motivation for innovation” and “competition”.
In all likelihood, the most vital issue Israel faces is the threat to privacy. In the case of offline methods, the transactors are anonymous while payment via digital shekel would be closely tracked by the government. Hence, the threat to personal privacy
Despite these challenges, Israel definitely wouldn’t want to step down in the digital race with competitive countries especially, China. So, it is only a matter of time!
