Israeli central bank official says CBDC competition with banks is good for economy

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In contrast to the general apprehension regarding how central bank digital currency (CBDC) may affect commercial banks, Bank of Israel deputy governor Andrew Abir expressed an opposing perspective in a speech posted on the central bank’s website. Instead of worrying, he encouraged commercial banks to strive for competition.

After decades of striving to boost competition in the Israeli banking industry, there have been noticeable improvements, according to Abir. However, he acknowledged that “there is still a lot more work to be done.” With the Bank of Israel hiking up interest rates to curb inflation, banks followed suit by elevating credit rates. However, the enhancement of deposit rates was described as “incomplete and leisurely.”

“In many countries around the world, including Israel, commercial banks do not win public popularity contests. […] In Israel, some of the anger directed at the banking system is the result of the need to increase the level of competition in some of the segments.”

The digital shekel’s design features an alternative for earning interest. Abir expressed confidence that the digital shekel, currently under development, would gain widespread approval from the public.

“The digital shekel will not be developed by some anonymous Satoshi Nakamoto. Everyone will know who is behind the digital shekel and who is responsible for it — […] the same Bank of Israel that stands behind the cash we all know and trust.”

Introducing a digital shekel would be advantageous for the Bank of Israel, as it would make central bank currency more accessible for applications like digital transactions. This could counteract the decrease in central bank money usage caused by technological advances in the private sector. (Abir’s statement)

Abir suggested that simply allowing people to keep digital shekels as an option could motivate banks to offer more attractive interest rates. Consequently, the digital shekel serves as a tool for the central bank to manage the impact of central bank interest rate changes.

The digital shekel reportedly has strong support among the Israeli public.

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2024-04-16 23:08