Bank of Israel Moves a Step Closer to Introduce CBDC in the Country

At the end of 2017, the Central Bank began considering the CBDC project. It did not perceive a risk of

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Bank of Israel Issues Draft Regulations Regarding AML for Crypto Firms

The Bank of Israel has issued a new draft guideline to stakeholders in the cryptocurrency ecosystem as it relates to Anti-Money Laundering (AML) provisions. (Read More)

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Bank of Israel Initiates Against Crypto Terrorism and Money Launderings

The Bank of Israel takes initiatives against illegal usage of crypto. Proper risk assessments to be conducted. Banks not to

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Israel’s central bank says CBDC could be issued if stablecoin use increases

The Bank of Israel does not want private companies taking over the digital payments system in the country.

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Israel Ties Digital Shekel Launch to US and EU

Israel’s apex monetary authority, the Bank of Israel, has listed several conditions that can speed up its decision to launch the digital shekel (SHAKED), the country’s central bank digital currency (CBDC). Issuance of CBDCs by other developed countries, especially the United States and the European Union (EU) tops the list, according to a statement released on Tuesday by the central bank’s Steering Committee on the Potential Issuance of a Digital Shekel.

Israel Gives Conditions for CBDC Launch

Other conditions listed by the Committee, which was created two years ago, include decline in the legitimate use of cash and its acceptance in Israel, high adoption of stablecoins and other private means of payment, continued segmental focus in the domestic payment system and advancement in technology.

Although Israel started mulling over the launch of a CBDC as early as 2017, the Committee noted that the bank has not yet reached a decision on whether to launch the digital shekel. It added that the apex monetary authority is still preparing an action plan for the potential issuance of SHAKED.

On the first condition, the financial regulator explained that a decision by the United States, the European Union or a significant number of other developed economies can spur its own decision. On the condition related to decreased acceptance of cash, the authority noted that while cash remains a significant leger tender for consumer transactions in the country, "it is highly probable that the use of cash as a means of payment will decline in the future."

Furthermore, on the condition tied to stablecoin, the monetary authority noted that there is currently no sign of “substantial adoption” of stablecoins as a means of payment in the country. However, it warned that significant adoption of this type of currency could impair the payment system.

“A stablecoin that isn’t pegged to the shekel might also harm the monetary transmission,” it added.

More Details on the Conditions

On the condition tied to the Israeli domestic payment system, the Committee noted that it could recommend the launch of SHAKED to boost competition in the country’s payment and financial system. The regulator explained that the country's deposit market is dominated by a small number of participants due to high entry barriers and leading other firms to concentrate majorly on other segments.

On the last point, the Committee noted that it will be willing to recommend a digital shekel if “it would be able to serve as an efficient and secure platform for advanced technological use cases.”

In other developments, the Israel Securities Authority since January has been working towards amending the country’s securities law to fit in cryptocurrencies. Moreover, in late 2022, the Tel Aviv Stock Exchange also disclosed plans to launch blockchain-based government bonds in partnership with the Israeli Ministry of Finance.

Across the world, the race towards CBDC presses on. In the Asian region, the United Arab Emirates recently launched its CBDC strategy. On the other hand, in Europe, the European Central Bank (ECB) recently tapped five big firms including Amazon for its digital euro payment prototyping exercise. On top of that, up to 30 Spanish banks also recently partnered to carry out new proof-of-concept (PoC) trials to measure the impact of issuing a digital euro by the ECB.

In the United States, the Federal Reserve Bank of New York recently held a three-month digital dollar PoC project in partnership with some US banking giants. On the contrary, Andrew Bailey, the Bank of England Governor recently raised questions about the need for a CBDC.

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Israeli Lawmakers Seek to Exclude Foreigners from Crypto Capital Gains Tax

Legislators in Israel conducted a preliminary reading for a new bill that proposes the exemption of foreigners from capital gains taxes or profit made from their cryptocurrency activities.

The bill, which seeks the amendment of Israel’s Income Tax Ordinance, also prescribes cutting the 50% tax on employees’ crypto options by half. The goal in this regard is to extend the tax benefit enjoyed by workers in the traditional high-tech industry to the digital asset industry.

Israeli Eyes Change to Crypto Tax Rules

Dan Illou, a lawmaker in the Likud party, noted in a statement that the bill has the backing of the coalition government led by Netanyahu. The bill also fits into the current administration’s plans to attract foreign investment to Israel, CoinDesk quoted Illou as saying in a statement.

The latest development has arrived as Israel seeks to regulate the emerging digital assets industry. In November, Shira Greenberg, the Chief Economist of the Israeli Ministry of Finance, put forward recommendations to regulate the country’s digital asset market, including creating mechanisms for tax payments on digital asset activities “in order to remove barriers and increase certainty.”

“Regulatory processes are being formulated and determined during this period in various countries in the Western world, and it is recommended that the State of Israel act in accordance with the standards emerging in the developed world,” Greenberg stated in a statement.

Earlier this year, the Israel Securities Authority (ISA) published a proposal seeking to amend the applicability of the Western Asia nation’s securities laws to crypto and digital assets. Recently, the Bank of Israel proposed rules for permitting stablecoin use in the country while managing risks and protecting investors.

Crypto Regulation in Israel

In the last five years, Israel has created three committees to look into various categories of crypto regulation and adoption in the country, Finance Magnates reported. The third committee, which was established in May 2021, sought to assess ISA’s policy with regard to investment products in digital assets.

While Israel continues to work on formulating regulations for its crypto industry, public authorities in the country are actively countering the use of digital currencies for crime. Additionally, Israeli authorities seized millions of dollars in crypto allegedly linked to groups in Iran and Lebanon. In a separate action, it confiscated 189 Binance accounts reportedly linked to Palestinian and Islamist terror groups.

Meanwhile, Israel, like major countries across the world, is also considering the launch of a central bank digital currency (CBDC). However, the country has tied the launch of its CBDC, the digital shekel, to similar moves in other jurisdictions, especially in the United States and the European Union.

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