(Kitco News) – The testing of central bank digital currencies (CBDCs) continues to ramp up despite rising geopolitical tensions and a struggling global economy as Israel and South Korea have both announced new pilot projects as they advance toward releasing digital fiat for public use.
According to Andrew Abir, deputy governor of the Bank of Israel, the central bank is preparing to launch a sandbox environment for testing CBDC use cases in an effort to refine the design of the digital shekel and ensure its capacity to facilitate advanced applications.
“We are now building the system and intend to officially announce the project in the coming weeks,” Abir said in a statement released Tuesday.
Abir reiterated that “a digital shekel is a liability of the Bank of Israel to the public – and in that sense, it is similar to cash, whose holding does not involve credit risk.”
The digital shekel also differs greatly from “digital currencies such as Bitcoin,” he added.
“Unlike Bitcoin and its likes, whose value can vary by whole percentages and sometimes even tens of percentages in a few days – a shekel is always a shekel. A digital shekel will always be worth one cash shekel, which is always worth one shekel in a bank account.”
“The purchasing power of the digital shekel will always be preserved because over time, the Bank of Israel maintains the inflation target – and if necessary, resolutely, as we have done in the last two years when inflation rose,” Abir said.
“In recent years, the economy has become more and more digital, and there are many types of transactions that simply cannot be paid for with cash issued by the Bank of Israel – for example, e-commerce transactions,” he said. “The cash of the Bank of Israel played a role in the competition between different payment methods, but its role has been eroded due to its technological inferiority. The digital shekel will allow us to pay with Bank of Israel money everywhere, and in any transaction we choose. This will enable the Bank of Israel to intensify the competition between different means of payment.”
He said the digital shekel “will operate on a two-tier model, with a wide range of entities that can serve as Payment Service Providers or as Additional Services Providers on the digital shekel platform,” including fintech companies, consumer clubs, and more.
“These entities will enable us to implement not only the simple payment operations we know today but will also be able to develop advanced and innovative use cases, for example in the world of Delivery vs. Payment that can reduce risk and create a wide range of new activities in the digital economy,” Abir said. “These entities will need to be regulated, but the financial supervision over them will be lighter than over the existing entities because they do not actually hold the public's money – it sits at the Bank of Israel. In this way, the digital shekel may be able to make a significant contribution to innovation and competition.”
To help meet its goals, the Bank of Israel will be launching an “API-based sandbox” in the coming weeks and has invited financial entities, fintech companies, and “anyone who wants – to develop advanced and innovative use cases that will help us understand how to properly design the digital shekel system so that it can support such use cases.”
“Like the central banks of all developed economies, the Bank of Israel has not yet made a decision regarding the possible issuance of the digital shekel,” Abir concluded. “The digital shekel project is an ‘action plan’ – at this stage, its role is to enable us to be ready to issue the digital shekel if and when we find it to be right and necessary.”
South Korea to launch public CBDC pilot
The South Korean Central Bank (BOK) has announced plans to “speed up” its digital won (KRW) project, which includes the launch of a pilot project involving 100,000 citizens later in 2024.
According to a report from Newsway, the Bank of Korea (BOK) will test digital KRW usability and deposit functions with the group in the fourth quarter.
“The Bank of Korea plans to issue and distribute Digital Currency I (deposit tokens) and Digital Currency II (e-money tokens) in the fourth quarter of this year,” the report said. “In the real-time transaction test, up to 100,000 ordinary citizens will directly participate and experience the utility of private digital currency in commerce.”
The BOK said the plan is to focus on testing deposit tokens with a digital voucher function “that can be used to purchase specific items at specific locations through the programming function of digital currency.”
The launch pilot testing follows the “CBDC usability tests” that the BOK announced in October in conjunction with the nation’s top regulators, the Financial Services Commission and the Financial Supervisory Service.
The BOK has also announced plans to “build a pilot CBDC network” that will “issue and distribute” three types of private digital currencies “based on institutional CBDC models.”