Israel to Start Digital Shekel Challenge to Develop Payment Use Cases

• Israel will be starting a challenge to explore payment use cases of its digital shekel.
• Payment service providers would get access to the system to provide advanced payment options to the general public.

Israel's central bank is launching a Digital Shekel Challenge as part of an "action plan for a possible issuance of the digital shekel," to develop uses in the world of payments, it announced Tuesday.

The Bank of Israel said it had built a technological prototype "simulating the heart of the digital shekel system." Payment-service providers would get access to the system to provide advanced payment options to the general public. Among the payment types to be explored are micropayments, split payments and payments requiring multiparty signatures, according to the call for participants.

"In the challenge, for the first time, we allow the financial industry from Israel and abroad and a wide variety of stakeholders in the payments system to cooperate with us in a practical way in thinking, planning and designing the digital shekel," said Andrew Abir, deputy governor of the Bank of Israel.

The Bank of Israel has not yet decided whether to issue a central bank digital currency (CBDC), even as it continues its yearslong exploration of the technology.

In 2021, it said it had already carried out a pilot test and last year it said it was monitoring scenarios – including whether stablecoins are widely used. It also conducted a project with Hong Kong and the Bank for International Settlement (BIS) to probe how the systems can be protected from hacks.

The challenge will kick off with an everything-you-wanted-to-ask webinar on June 6, and go through a process of applications and presentations before culminating at the end of September when results will be discussed. A date for final meetings and announcement of the results has not been set.

The challenge is inspired by the BIS Innovation Centre's "Rosalind Project," which looked at how application programming interface (API) functionalities could support a retail CBDC and facilitate safe and secure payments, the announcement said.

"This initiative is a significant step for the Israeli ecosystem, potentially bridging the gap between the web3 industry and government, even though DeFi, ZK and permissionless solutions are not yet being considered," said Saul Rejwan, managing partner at Masterkey VC.

Read More: Israel's Central Bank Outlines Scenarios for Issuing a Digital Shekel