Bank of Israel releases report on digital currencies

08 Nov, 2018
by David Robb
Bank of Israel releases report on digital currencies

The Bank of Israel is the latest national central bank to consider the possibility of issuing a national digital currency. In a recent report, the institution outlines the potential advantages of a CBDC (central bank digital currency), but concludes that it's not advisable for the time being.

According to the report, the benefits of a CBDC include "assistance with combating the unreported economy, adaptation with the advanced technological environment, and advancing the fintech sector in Israel. Another important consideration is coordination with possible advances in this field made by other countries."

The report states that digital currencies are just as "convenient and accessible" as their physical or fiat alternatives. However, it claims that the "main purpose of issuing digital currency is to maintain the public’s access to a central bank’s liability", and the Israeli economy isn't currently witnessing any significant reduction in the use of cash. This differs from somewhere like Sweden, which is now at the point of launching its own national digital currency, the e-krona. Because of the continuing usage of cash, the demand for a CBDC in Israel is significantly less.

Read more: Sweden may bring forward launch of state digital token, the e-krona

There are also a number of risks related to a CBDC outlined in the paper. The impact on the financial system could lead to a number of "material and technological difficulties",  and issuance is also "expected to have an effect on the central bank as the issuer of cash, on its management of monetary policy, and on the payment system". These considerations lead the report not to recommend a CBDC in the near future, but also to continue research in this field.

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