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Posted By admin on March 5, 2022

Israels central bank says the publics adoption of the digital shekel is not expected to materially affect the banking system. The bank, however, warns that any issuance of such digital currency will likely result in a decline of the volume of the publics deposits.

Israels central bank, the Bank of Israel (BOI), has said its analysis of the proposed digital shekels possible impact on banking stability showed that the expected effect is not as significant as previously thought.

However, the banks analysis notes the decline in the volume of the publics deposits held in banks following the issuance of digital shekel, would nonetheless lead to some increase in the banking systems interest expenses. The same might also lead to an erosion of the banking systems net profit, the BOI warned.

While the central bank said it has not yet made a decision to issue the central bank digital currency (CBDC), in its recently released statement, the BOI revealed it is building an action plan for the potential issuance of such a digital currency.

The statement also makes reference to a paper that was published by the BOIs steering committee. In that paper, the committee examined the banks motivations for issuing the CBDC also known as SHAKED as well as the ramifications of such a digital currency on financial intermediation.

Meanwhile, the BOI statement also discusses some of the key findings from the steering committees May 2021 paper. The BOI statement notes:

Transferring a certain volume of money from the publics deposits to SHAKED would have various effects on the balance sheets of the banking system and of the Bank of Israel. The banking systems balance sheet would contract due to the decline in the Publics deposits item on the liabilities side and in the Deposits at the Bank of Israel on the assets side.

The BOI adds that in the event the banking system attempts to maintain the credit portfolio to the public at levels prior to the CBDC launch, that development would erode banks liquidity ratios to a certain extent.

Besides looking at the potential impact that the CBDC might have on the banking system and the economy, the BOI said it will also examine other issues that arise as part of the research and preparation toward a potential issuance of a digital shekel in the future.

The central bank concludes its statement by reiterating that it has not made a decision to issue the digital shekel just yet.

What are your thoughts on this story? Tell us what you think in the comments section below.

Terence Zimwara is a Zimbabwe award-winning journalist, author and writer. He has written extensively about the economic troubles of some African countries as well as how digital currencies can provide Africans with an escape route.

Image Credits: Shutterstock, Pixabay, Wiki Commons, Roman Yanushevsky

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Bank of Israel: Adoption of CBDC Will Not Materially Affect the Banking System Fintech Bitcoin News - Bitcoin News

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