For the last year the Bank of Israel has been exploring central bank digital currencies (CBDC) and today published its report. The main recommendation is that the bank should not issue a CDBC in the near future, but the topic should continue to be examined and monitored.
The study noted that no central bank in an advanced economy had issued a CBDC for broad use, though it acknowledged that some are considering it, notably Sweden.
There is also no standard definition or format for a CBDC. For example, it could be issued for use by financial institutions only, or for retail use only or both. There is also no standard set of features. Physical cash does not earn interest so there’s the question of whether a CBDC would be interest bearing and the degree of anonymity.
The bank compared a CBDC to other immediate payment systems. The differences include that a CBDC is a central bank liability, it could enable offline transactions as well, and if permitted it could have a degree of anonymity.
The comparison is important as this was the area that most interested the Bank of Israel. It stated that it’s examining and encouraging the creation of an infrastructure for immediate payments and is interested in the extent to which digital currency “could complement or replace the system”.
The bank also suggested that an international workshop to explore the topic could be held in the future with participating central banks as well as the BIC, OECD and IMF.
There have been numerous studies by many central banks. The highest profile are Canada’s Project Jasper and the Monetary Authority of Singapore’s Project Ubin. The BIS has also published reports, and more recently IBM and OMFIF published the results of a survey.
In the meantime, while not a CDBC, seventeen banks are planning to create the Utility Settlement Coin (USC) where money deposited at a central bank backs the coin. The purpose is to enable immediate settlement of securities and other financial transactions. For this, the central bank is taking on the role of custodian.