From Cash to Code: Israel’s Bid to Retain Monetary Control with a Digital Shekel

As global finance enters a new digital era, Israel finds itself at a pivotal crossroads. The Bank of Israel’s exploration of a central bank digital currency (CBDC)—the so-called “digital shekel”—is more than just a technical upgrade to the country’s payment systems. It reflects a deeper national choice: how to modernize financial infrastructure while upholding democratic values like privacy, inclusion, and economic sovereignty.

Why Is Israel Considering a CBDC?

Around the world, central banks are racing to launch CBDCs in response to declining cash usage, the rise of private cryptocurrencies, and the growing dominance of Big Tech payment platforms. For Israel, these pressures are magnified by its unique geopolitical environment. A digital shekel could serve as a strategic shield—enhancing domestic control over payment systems and reducing vulnerability to regional shocks, sanctions, or overdependence on global financial intermediaries.

It would also help the Bank of Israel maintain monetary sovereignty in an age when traditional tools, like interest rates and reserve requirements, are increasingly constrained by decentralised digital alternatives.

Learning from Experience—and Leading with Innovation

Israel is not starting from scratch. The Bank of Israel has already engaged in CBDC simulations, including a cross-border payment trial with the Hong Kong Monetary Authority and the BIS Innovation Hub. These pilots have tested not only technical feasibility but also cybersecurity resilience, privacy-preserving mechanisms, and integration with existing banking infrastructure.

This work builds on Israel’s globally respected fintech ecosystem—one of the most vibrant in the world. The country’s regulatory sandbox has enabled dozens of startups to experiment with blockchain, digital wallets, and smart contracts. This puts Israel in a strong position to design a digital shekel that is secure, efficient, and adaptable to future innovation.

Inclusion, Accessibility—and the Risk of Exclusion

Beyond technical innovation, the digital shekel must serve all Israelis. Financial inclusion is both a moral imperative and an economic necessity. In segments of the population—including parts of the Arab Israeli community, the ultra-Orthodox, and recent immigrants—access to traditional banking remains uneven. A well-designed CBDC could empower these groups by offering a low-cost, easy-to-use digital payment system that doesn’t require a conventional bank account.

Yet inclusion also means accessibility. Older adults, the visually impaired, and people with limited digital literacy must not be left behind. User interfaces will need to be intuitive, multilingual, and compatible with basic mobile phones—not just smartphones.

Public Trust, Privacy, and the Role of Commercial Banks

The Israeli public is curious—but cautious. Surveys show considerable interest in a digital shekel, but concerns around privacy loom large. Israelis value their financial autonomy. If the state—or any third party—can monitor every transaction, trust in the system may erode.

The Bank of Israel must therefore strike a delicate balance: enabling regulatory oversight to prevent money laundering and fraud, while protecting individual rights through layered anonymity, strong encryption, and legal safeguards.

There are also implications for Israel’s commercial banks. If individuals can hold CBDC balances directly with the central bank, it could disintermediate traditional banks—especially in times of crisis. A “digital bank run” could happen with a tap on a screen. Thoughtful policy design, including caps on wallet balances and tiered interest structures, will be essential to preserve systemic stability.

A New Channel for the Jewish Diaspora

Interestingly, a digital shekel could also become a bridge to the global Jewish diaspora. Remittances, charitable donations, and Israel Bonds could be digitized, reducing transaction costs and friction. Diaspora communities could support Israel in real time, securely, and with full transparency—enhancing economic ties and national resilience.

Environmental, Social, and Governance (ESG) Potential

While still in early stages globally, CBDCs hold promise for enabling “programmable money” linked to social or environmental goals. The digital shekel could, for instance, support ESG-linked subsidies, green energy credits, or carbon-offset transactions with full traceability. Israel, a leader in agritech and climate innovation, could pioneer the use of CBDCs to support a sustainable digital economy.

The Road Ahead

Israel’s journey toward a CBDC will require cautious optimism and inclusive collaboration. The infrastructure is largely in place: digital literacy is high, smartphone penetration is widespread, and cybersecurity is a national priority. But success will hinge on public trust, robust legal safeguards, and a commitment to accessibility.

The digital shekel is more than a new form of money. It is a test of how Israel will navigate the digital transformation of its economy—while protecting the values of transparency, equity, and democratic governance that define the nation.

If done right, Israel won’t just join the global CBDC race. It will help shape its ethical and strategic direction.