Bank of Israel, BIS and Hong Kong cenbank to test feasibility of retail CBDC

An Israeli flag flies in front of the Bank of Israel building in Jerusalem August 7, 2013. REUTERS/Ronen Zvulun/File Photo

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JERUSALEM, June 16 (Reuters) – Israel’s central bank said on Thursday it is teaming up with the Hong Kong Monetary Authority and the Bank for International Settlements (BIS) Innovation Lab to test the feasibility of a central bank digital currency (CBDC) for retail.

The test will be secured by cybersecurity and in the proposed model, intermediaries will have no financial exposure to customers holding or transferring CBDCs, which will reduce risks and costs, the Bank of Israel said.

The so-called Sela project, led by the Hong Kong center of the BIS Innovation Hub, is expected to start in the third quarter and results will be released by the end of the year.

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The Bank of Israel intensified its research and preparations for the possible issuance of a digital shekel to create a more efficient payment system after it first considered issuing a CBDC in late 2017.

“Providing an efficient payment system that will increase competition in the payments market is one of the main motivations we have identified for a possible issuance of a digital shekel – an Israeli CBDC,” said the deputy governor of the Bank of Israel, Andrew Abir, in a statement.

Last month, the bank said that although it has received public support, it has not yet made a final decision on issuing a digital shekel. Read more

The joint project will explore the feasibility of a two-tier architecture where there is no financial exposure of intermediaries involved in the transaction, unlike traditional methods of providing funds from the central bank to the public via commercial banks.

“This architecture is believed to have several advantages: less financial risk for the customer, more liquidity, lower costs, increased competition and wider access,” the Bank of Israel said.

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Reporting by Steven Scheer; Editing by Robert Birsel

Our standards: The Thomson Reuters Trust Principles.

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