Israel Deputy Governor Andrew Abir has recently offered his insights on central bank digital currency (CBDC), eliciting diverse responses. Despite the common apprehension about CBDC’s effects on commercial banks, Abir diverged from this viewpoint in a speech published on the central bank’s website.

Abir highlighted the positive effects of competition in the Israeli banking sector, which has been steadily increasing over the past decade. However, he noted that there is still room for improvement. Despite the Bank of Israel’s efforts to combat inflation by raising interest rates, commercial banks have been slow to raise deposit rates in response.

Abir pointed out that commercial banks often face public criticism, both in Israel and globally. In Israel, dissatisfaction with the banking system stems from a lack of competition in certain areas.

Confidence in the Israel Digital Shekel

Abir expressed confidence in the potential success of the digital shekel, which is currently in the planning stages. He emphasized that this digital currency would receive public support and benefit the Bank of Israel by enhancing the liquidity of central bank money.

Unlike cryptocurrencies created by anonymous figures like Satoshi Nakamoto, the digital shekel would be backed by the Bank, instilling trust in its users. Abir explained that the digital shekel would assist the bank in various ways, such as facilitating digital payments and counteracting the declining use of central bank money due to advancements in private sector technology.

Moreover, the introduction of the digital shekel could incentivize commercial banks to offer higher interest rates to attract customers. This would provide the central bank with a tool to influence the transmission of its interest rates.

Abir believes that embracing digital currency, specifically the digital shekel, could bring numerous benefits to both the economy and the Bank of Israel.