Israel is taking a big leap towards a digital future with the launch of the "Digital Shekel Challenge." This innovative program aims to develop a central bank digital currency (CBDC) – essentially, an electronic version of the Israeli shekel – through a collaborative effort between the Bank of Israel (BoI) and the public.

Inspired by Project Rosalind, a successful international experiment in digital currency API development, the Digital Shekel Challenge will provide a unique sandbox environment for participants. Think of it as a playground where developers – from established financial institutions to passionate students – can build real-time payment systems using the digital shekel.

This challenge is more than just a coding competition. The BoI seeks "original and innovative" solutions, encouraging participants to develop new payment methods or improve existing ones. Niche use cases are also welcome, aiming to cater to the diverse needs of the Israeli economy.

Deputy Governor Andrew Abir emphasizes the importance of collaboration. "The success of the digital shekel will rely on teamwork," he states, acknowledging the crucial roles of the private sector, government, and the public itself. The challenge serves as a platform for open dialogue and engagement, ensuring a digital shekel tailored to the needs of all stakeholders.

The idea of a CBDC may raise questions about competition with existing banks. However, Abir views this as a positive force. A digital shekel could incentivize banks to offer more competitive interest rates on deposits, ultimately benefiting consumers.

This initiative builds upon previous groundwork. The BoI has been actively researching a digital shekel since 2017 and conducted public consultations in 2021. These consultations revealed public support for the research, with some expressing concerns about privacy.

The BoI has addressed these concerns by highlighting its commitment to maintaining, or even enhancing, the level of privacy protection currently enjoyed by digital payments.

The Digital Shekel Challenge marks a significant step towards a future where digital payments are seamless, secure, and accessible. With an open, collaborative approach, Israel is paving the way for a more innovative and efficient financial system.