Today the Bank of Israel unveiled its Digital Shekel Challenge. This follows the announcement of a central bank digital currency (CBDC) sandbox last month. The central bank is inviting participants from Israel and abroad to participate in developing innovative use cases. Inspired by the BIS and Bank of England’s Project Rosalind, the Challenge will focus on connecting to the CBDC system using APIs. The closing date for applications is July 11.
The central bank has suggested a variety of use cases, including split payments, micropayments, various types of conditional payments and sub wallets.
Contestants will be whittled down based on several criteria. The top two criteria are the innovative nature of the use case and its compatibility with Israel’s economic needs. The third is the extent to which it meets the outlined objectives of the digital shekel.
Those objectives include:
- competition
- innovation
- redundancy and resilience of the payments array
- cross-border
- payments privacy
- reducing the use of cash by making the Digital Shekel more accessible to population groups that frequently use cash.
The design of the digital shekel as well as central bank communications have emphasized the need for Israeli banks to become more competitive. For example, the digital shekel could be interest bearing. Thus, if banks fail to pass on rate increases to depositors, the central bank could possibly do so directly.
While the CBDC is designed as a two-tiered system, in other countries it is more closely tied to banks. Israel has emphasized that a CBDC wallet supplied by a non-bank payment provider will still be able to top up from a bank account.
Judging by the Challenge, the Bank of Israel is keen to see quite a bit of competition between applicants as well.
