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The Bank of Israel is launching the Digital Shekel Challenge, inviting various sectors to develop applications for a potential central bank digital currency (CBDC).
The Bank of Israel is advancing its digital currency initiative, known as the digital shekel, by announcing the “Digital Shekel Challenge.” This initiative aims to explore the potential development and applications of a CBDC.
According to a press release, the Bank of Israel plans to test the digital currency through a technological prototype that simulates the core system of the digital shekel and its API layer. This prototype allows payment service providers and other stakeholders to access the system and develop services for the public, offering new payment options with the digital shekel.
“The success of the digital shekel will rely on collaboration between the Bank of Israel, the private sector, and the government. Through this challenge, we are allowing the financial industry from both Israel and abroad, as well as a broad range of payment stakeholders, to practically engage with us in the thinking, planning, and design of the digital shekel.”
Andrew Abir, Deputy Governor of the Bank of Israel
Participants in the pilot will be tasked with developing various use cases for the digital shekel, utilizing the API layer. The central bank emphasizes that priority will be given to “original and innovative” payment applications, whether they enhance existing systems or introduce entirely new solutions.
Shauli Rajwan, founder and managing partner of crypto investment fund Masterkey VC, mentioned that the Bank of Israel will likely focus on solutions that leverage micropayments, digital trusts, and data products. He also noted that the program would consist of three phases: application and presentations, access to the new network for selected projects, and a final presentation to judges.
“This initiative is a significant step for the Israeli ecosystem, potentially bridging the gap between the web3 industry and government, even though defi [decentralized finance] and permissionless solutions are not yet being considered.”
Shauli Rajwan
The Bank of Israel began its exploratory research on the digital shekel back in 2017, examining the potential benefits and challenges of issuing a CBDC. The initial phase focused on understanding global trends in digital currencies, technological feasibility, and the potential impact on monetary policy and financial stability. In 2021, the Bank of Israel accelerated its efforts by establishing a dedicated task force to further investigate and develop the digital shekel.
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