Key Takeaways:
- Bank of Israel’s Support for Digital Currency: Deputy Governor Andrew Abir endorsed the digital shekel, suggesting it could increase competition in the banking sector and drive economic benefits.
- Critique of Commercial Banks: Abir criticized the slow pace of commercial banks in adjusting deposit rates compared to credit rates and noted public dissatisfaction with the banking sector’s performance.
- Transparency and Operational Enhancements: The digital shekel will be developed transparently by the Bank of Israel, promising to improve transparency and strengthen central banking operations, especially for digital transactions.
The Bank of Israel’s Deputy Governor, Andrew Abir, recently expressed support for the potential disruption the digital shekel could bring to commercial banking.
In a speech that was released on the central bank’s website, Abir shared his perspective, suggesting that increased competition among banks could benefit the economy.
Israel’s currency strengthens as traders weigh efforts by global leaders to avert a wider Middle East war following a direct attack by Iran https://t.co/OJdZ7zWFdt
— Bloomberg (@business) April 15, 2024
For years, efforts to enhance competition in Israel’s banking sector have yielded positive results, yet more progress is needed.
“We still have a long way to go,” Abir stated, highlighting the slower response of banks in raising deposit rates compared to credit rates even as the Bank of Israel hiked interest rates to address inflation.
Abir commented on the general public’s dissatisfaction with commercial banks, a sentiment prevalent in many countries, including Israel.
“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,” he explained.
💼🏦 Bank of Israel Deputy Governor Andrew Abir highlights positive impact of CBDC competition with banks on economy, emphasizing need for banks to compete and support private sector technological innovation, aiming to reverse decline in central bank funds usage. #Bitcoinworld…
— BitcoinWorld Media (@ItsBitcoinWorld) April 16, 2024
Unlike cryptocurrencies that often have obscure origins, the digital shekel promises transparency in its development.
“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,” Abir affirmed.
The introduction of a digital shekel could also strengthen the central bank’s operations by enhancing the availability of central bank money, particularly for digital transactions, countering the decline in its use due to private sector innovations.
Today's #Fintech Digest includes the Bank of Israel considering remunerated central bank digital currency (#CBDC), the Bank for International Settlements vision for a "Finternet" of interconnected multiple financial ecosystems, and UK Finance launching the experimentation phase… pic.twitter.com/AnvyDk8m9x
— John Kiff (@Kiffmeister) April 16, 2024
Furthermore, Abir suggested that the mere option of holding digital shekels could prompt banks to offer higher interest rates.
This, in turn, would give the central bank a tool to more effectively transmit its interest rate policies throughout the economy.
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