Israel is pushing forward with the digital shekel initiative to accelerate the development of its central bank digital currency (CBDC).

The Bank of Israel (BoI) will be collaborating with a range of service providers to create a sophisticated digital payment system based on this new currency.

Reclaim the Net reports: Central Bank Digital Currencies have sparked significant controversy, particularly concerning privacy and civil liberties. One of the primary concerns is the potential for increased surveillance. Unlike cash transactions, which offer a high degree of anonymity, CBDC transactions could be meticulously tracked and monitored by central banks. This capability to log and trace every transaction made with CBDCs could severely undermine financial privacy, allowing governments to gather extensive data on individuals’ spending habits and personal financial activities.

Moreover, the enhanced government control over the money supply that CBDCs could provide raises further issues. With CBDCs, authorities might more easily freeze or seize assets without due process, potentially misusing this power to target political opponents or suppress dissent. The concept of programmable money, where the government could dictate how, where, and when money can be spent, also poses a risk. While this could be utilized for beneficial purposes such as directing stimulus funds, it also opens the door to excessive control over individual financial behavior.

Israel’s central bank outlined its plans in an announcement, revealing the launch of the “Digital Shekel Challenge.” This initiative, inspired by the Bank for International Settlements (BIS) Innovation Hub’s “Project Rosalind,” aims to explore advanced API prototypes. The BIS project, conducted in partnership with the Bank of England, serves as a model for this Israeli endeavor.

Within the framework of the challenge, the BoI will offer a sandbox environment equipped with an API layer. Participants will compete to develop real-time CBDC payment solutions designed for widespread public use.

Shauli Rejwan, managing partner at Masterkey Venture Capital in Tel Aviv, shed light on the program’s structure in an interview. He described the challenge as a three-phase process: initial applications and presentations, subsequent access to the new network for selected projects, and a final presentation to a panel of judges, many of whom are prominent figures in the crypto community.