The Bank of Israel has launched its Digital Shekel Challenge, following the recent announcement of a central bank digital currency (CBDC) sandbox. This initiative invites participants from both Israel and abroad to develop innovative use cases for the digital shekel. Drawing inspiration from the BIS and Bank of England’s Project Rosalind, the Challenge aims to facilitate connections to the CBDC system through APIs. The application deadline is July 11.
The central bank has proposed a range of potential use cases, including split payments, micropayments, various conditional payments, and sub-wallets. Participants will be evaluated based on several criteria, with the primary factors being the innovative nature of the use case and its alignment with Israel’s economic needs. The third criterion is how well the use case meets the objectives outlined for the digital shekel. These objectives include:
- Enhancing competition
- Fostering innovation
- Increasing redundancy and resilience in the payments system
- Facilitating cross-border payments
- Ensuring privacy in payments
- Reducing cash usage by making the Digital Shekel more accessible to cash-dependent groups
The design of the digital shekel, along with communications from the central bank, underscores the necessity for Israeli banks to enhance their competitiveness. For instance, the digital shekel could potentially bear interest. This feature would enable the central bank to directly offer interest rate increases to depositors if banks fail to do so.
While the CBDC is structured as a two-tiered system, unlike other countries where it is more integrated with banks, Israel emphasises that a CBDC wallet provided by a non-bank payment provider can still be funded from a bank account.
Find out more about the Digital Shekel Challenge via the Bank of Israel’s website.
