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HomeLaw & PoliticsAdoption of CBDC not likely to substantially damage the financial system: BOI

Adoption of CBDC not likely to substantially damage the financial system: BOI

The Bank of Israel (BOI) has issued a statement about its research on Digital Shekel’s potential impact on financial stability. The research revealed that the projected effect of digital shekel is not as large as originally assumed. According to BOI, the adoption of the digital shekel is not likely to substantially damage the financial system. BOI is the central bank of Israel. According to the bank’s study, “a fall in the volume of public’s saving” held in banks would result in “an increase in the banking system’s interest expenditures.” This all will be as a result of the issuing of digital shekels. The situation might lead to a decrease in the banking system’s net profit. The statement also mentions a study released by the BOI’s steering committee in May 2021. The committee explored the bank’s rationale for releasing its central bank digital currency (CBDC) as well as the implications of such a CBDC on financial intermediation.

Furthermore, the BOI statement covers some of the important conclusions from the steering committee’s study as follows:

  • Transferring a particular amount of money from deposit accounts to SHAKED (the Hebrew acronym for “Digital Shekel”) would have a variety of consequences on the banking system including BOI balance sheets.
  • Also, if the banking sector tries to keep the credit portfolio available to the public at levels previous to the CBDC’s inception, this will “erode banks’ liquidity ratios to some extent.
  • BOI will explore other concerns that occur as part of the study and plan for the potential future issuing of a digital shekel.

BOI has also said that it is yet to reach an official judgement to issue the central bank digital currency (CBDC). However, a recently issued statement indicated developing an action plan for CBDC.

 

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