Last year, Israel’s central bank carried out a CBDC research to embrace the digital economy. The research for the digital Shekel lasted for over a year. However, the Bank of Israel (BOI) is not ready to issue the digital Shekel.
Meanwhile, the BOI has stated that the supervision of smart contracts should be under its jurisdiction. This was after it carried out a two-step CBDC test involving the usage of smart contracts.
Smart contracts are written codes that facilitate the transfer of funds. Therefore, the BOI believes that not just anyone should be allowed to write smart contracts. It noted that the risk to the country’s financial system is too big.
Also, the bank believes that developers of smart contracts can add malicious codes to them. Furthermore, it can be prone to errors due to negligence on the writer’s part. As a result, this might lead to losses of funds.
However, the BOI may not write the codes for the smart contracts itself. It might give it to payment service providers (PSPs) and supervise the process.
The Result Of The CBDC Trial
The BOI did the CDBC trial in two phases. The first phase aimed to develop a cloud-based ETH blockchain platform dubbed Quorum. Additionally, it would release the ERC20-compliant currency.
Also, the first phase would carry out some rudimentary transactions. It would investigate the chances of limiting transaction figures. This prevents users from withdrawing huge funds and then converting to digital Shekel.
Furthermore, it would prevent the customers from abandoning traditional payment options for smart contracts. After making the transactions, the BOI used a proof-of-authority mechanism to finalize them.
As for the second phase, it focused mainly on the privacy of participants in the transaction. The result was similar to the proposal of the Steering Committee.
The committee clamored for a digital Shekel with a limited number of private transactions. After exceeding the limit, it would record the details of the sender and receiver.
BOI Says CBDC Trial Does Guarantee Issuance Of Digital Shekel
The BOI underlines that this testing does not mean it will issue a digital Shekel. However, it performed the test because of its professionals.
It would help them comprehend the Ethereum ecosystem and distributed ledger tech. Israel’s central bank recently partnered with Hong Kong for a combined CBDC project.
According to the report, the bank will launch the project in Q3 of 2022. Also, commercial banks will function as intermediaries between central banks and customers. This aims to harden the CBDC against all forms of cyber attacks.