Yesterday the Bank of Israel shared details about its first set of technical trials for a central bank digital currency (CBDC). One test used smart contracts, raising the issue of who should be allowed to write smart contracts and how to police them. A second digital shekel test focused on a novel way of enabling limited quantities of private payments. Both experiments used a two-tier model intermediated by payment providers and blockchain, with different technologies for each.
The central bank emphasized that it hasn’t decided to issue a digital shekel and the technologies used in its experiments do not indicate any preferences.
Physical cash provides not just privacy for payments, but anonymity. Central banks are reluctant to enable the same degree of anonymity for fear of money laundering and tax evasion. Yet many central banks worldwide are also aware that as cash usage declines, digital currencies threaten people’s right to privacy.
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