Last week, the Bank of Israel published a paper assessing the potential impact of issuing a central bank digital currency (CBDC) – the digital shekel (SHAKED) – on the banking system’s stability. While the central bank has been building an action plan for the potential issuance of the SHAKED, it reiterated that it “has not yet decided whether it intends to issue a digital currency”.
As part of the action plan, the Bank of Israel analyzed the potential impact of issuing a CBDC on the stability of the banking system and its ability to fulfill its financial intermediation function. The issuance of a digital shekel would also lead to a change in the Bank of Israel’s balance sheet composition. The SHAKED would be added to the central bank’s liabilities (as an addition to the total cash in circulation), while the deposits at commercial banks would shrink.
The Bank of Israel’s analysis forecasted a negative impact on the commercial banking system’s profitability, but it is not expected to be significant to the sector’s business, stability or ability to provide credit.
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