The central bank of Israel has chosen Ethereum’s network to launch the stages of its CBDC trial program. The Bank of Israel Supposedly launched a digital currency pilot program, striving to create its central bank digital currency based on the Ethereum blockchain.
Nonetheless, the project may face some considerable challenges. Most of the leading countries like Japan, China, Sweden, France, and several others have worked for several years on developing a digitalized version of their national currency.
Based on a report by Globes, the bank of Israel has joined the trend. It is currently at the initial stages of issuing a CBDC. The bank chose the Ethereum network to achieve this move. CBDC Project Manager at the Bank of Israel, Yoav Soffer, explained:
“We did a trial with Ethereum technology, not because we think that that’s necessarily the technology we’ll use, but because it was a technology that was available for us to get our hands dirty with, in order to understand its advantages and disadvantages.”
The Bank of Israel set up teams that set up a trial environment that is based on the Ethereum blockchain and it issued a token that represents CBDCs. In that context, it designed digital wallets from where the team members could easily exchange “imaginary digital shekels” with each other within the central bank.
Notably, Hong Kong, Australia, and Thailand used the same strategy in their CBDC projects. Israel examined the economic, legal, and technological aspects of these projects.
Soffer said that the initiative is ‘challenging.’ He also stated that due to its complexity, it is quite challenging to give a finishing day for the pilot project:
“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.”
The Challenges
During the pandemic, methods of digital payment have been increasing in the country. In that context, issuing a central bank digital currency seems to be a great idea that can fit into society’s new habits. But, many challenges currently exist in front of it.
For now, the Bank of Israel is not sure whether it can design a digital version of the shekel that can manage to cater to all the needs of its local population. Moreover, the network that can support such a product seems not ready to uphold for the long term.
For instance, Israel’s top financial institution should have a solution in case an emergency comes up or a breakdown of the network so that people can settle transactions even when they are offline.
The central bank needs to also come up with a CBDC that is competitive and accessible when compared with other types of payment. If that does not happen, Israelis will just have to settle daily transactions with other available traditional methods.
Maybe the most considerable challenge among them is how to make the people that use cash switch to digital payments. In the end, the former method is quite anonymous while using a digital shekel might be closely monitored by the Israeli government. That factor is what threatens personal privacy.
