Israel is looking into getting its own central bank digital currency (CBDC), and it’s turning to Hong Kong as a partner to run a trial that will test the currency, most importantly against cyber security risks. The Bank of Israel will team up with the Hong Kong Monetary Authority and the Bank of International Settlements’ (BIS) Innovation Lab for the project.
The Sela project is set to start in the third quarter of the year and will try out a relatively new model of currency distribution. The digital currency will use what’s called a two-tiered architecture, which essentially gets rid of risk for the middleman. It’s designed so that intermediaries like banks can handle it with no financial exposure to customers, with the idea that this may make it less vulnerable when it comes to cyber security and cyber attacks. Findings from the trial will be released at the end of the year.
This marks Israel’s central bank’s second time entertaining the idea of a digital shekel, which it first considered in 2017 and received some public support for. Israel is one of around 100 countries embracing the digital currency trend, and this move puts them in a closer camp to places like China, which has already been working on a digital yuan that around 140 million people have tested.
“Providing an efficient payment system that will increase competition in the payment market is one of the primary motivations we’ve identified for a possible issuance of a digital shekel – an Israeli CBDC," said Andrew Abir, the Bank of Israel’s deputy governor.
“This architecture is assumed to have several benefits: less financial risk for the customer, more liquidity, lower costs, increased competition and wider access," the Bank of Israel said in a statement.