Digital currency unlikely to harm Israel’s banking system, central bank says

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The Bank of Israel building is seen in Jerusalem June 16, 2020. Picture taken June 16, 2020. REUTERS/Ronen Zvulun/

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JERUSALEM, March 2 (Reuters) – The Bank of Israel has moved closer to the possible issuance of a digital shekel, saying on Wednesday there was unlikely to be any significant erosion in the banking system’s trading performance .

Bank of Israel Governor Amir Yaron said in November that the central bank was accelerating its studies, research and preparations for the possible issuance of a digital shekel aimed at creating a more efficient payment system. .

In an analysis released Wednesday, the central bank said a digital shekel — which it calls “shaken” for its Hebrew acronym — shouldn’t impact the banking system too much if the public embraces it as an alternative to cash.

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“However, any potential transition of some of the deposits from the public to the shaken can have a significant impact on: (1) the structure and quality of sources in the banking system; (2) the funding costs of the banking system; (3) the volume and price of bank credit to the public; and more,” the central bank said.

It would also likely impact the Bank of Israel’s balance sheet, while banks would have to take steps to maintain liquidity levels, he added.

The Bank of Israel pointed out that, like other central banks, it has not yet decided whether it intends to issue a digital currency.

The Bank of Israel began considering the possibility of issuing a central bank digital currency (CBDC) in late 2017, but a year later a team set up to study the matter recommended against issuing one in a near future. Last May, the central bank said it was considering issuing a digital shekel again.

He said a decline in the volume of deposits from the public would lead to an increase in the banking system’s interest charges – and therefore an erosion of its net profit – for a number of reasons.

But this “should not lead to a significant erosion of the commercial results of the banking system, of its stability – in particular, the Tier 1 capital ratio remains high – or of its ability to provide credit and perform its traditional functions in a modern economy. “, said the central bank.

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Reporting by Steven Scheer; Editing by Toby Chopra

Our standards: The Thomson Reuters Trust Principles.

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