- Israel is experimenting with its own digital currencies, having kickstarted a trial.
- The country is leaning on Ethereum to gain a better understanding of the underlying technology behind CBDCs.
- Central Banks around the world are working to develop their versions of digital currencies to stifle the influence of cryptocurrencies.
The State of Israel is not twiddling its thumbs as the pace for CBDC development quickens. The country has begun a trial for development and is running the tests with the help of the second-largest cryptocurrency in the world.
Ethereum And The Digital Shekel
The Bank of Israel has taken the next step towards the actualization of a CBDC like the rest of its counterparts around the world. The experiment was carried out in a controlled environment that was based on the Ethereum blockchain by the bank’s IT team.
Speaking on the nature of the trial, Yoav Soffer, CBDC project manager said Ethereum was chosen because it is a technology that was readily available and offered the team the chance to get their “hands dirty” and to “understand the advantages and disadvantages”. He made the revelation at the Central Bank Digital Currency Conference – Innovation, Opportunity, and Challenges.
The experiment took place on a closed Ethereum network and involved members of the IT team setting up digital wallets and issuing tokens referred to as digital shekels. The transfer of digital shekels to wallets was closely studied by the team while simulating real-life applicability. The ultimate goal of the Bank of Israel is to create a system where providers do not have access to funds unlike the case with credit card companies.
This method is not without its own challenges. Soffer cites a major challenge as the difficulty to foresee a completion date for the project. He says, “in general, projects at the Bank of Israel have start and finish dates. You know when they will end and what you need to achieve along the way. We don’t know when this project will end, with all that that implies.”
An Avalanche of CBDCs
The aftermath of the pandemic has seen the steady rise of digital payment adoption in Israel. The popularity of cryptocurrencies has also fostered adoption rates and has become a source of concern for Central Banks around the world.
China seized the bull by the horns to develop its digital yuan that has undergone several testings while Bahama’s Sand Dollar has also received a measure of success. The IMF in a report has advised central banks to seize the initiative to develop their iteration of CBDCs to encourage and improve cross-border payments. The international financial body warns of the dangers of cryptoization which could lead to bigger macroeconomic issues if the trend of cryptocurrency adoption is left unchecked.
According to a recent report by Axios, 81 countries are currently developing their CBDCs with 33 in research stages while 12 countries are in the pilot stage of development.