Bank of Israel Boosts CBDC Efforts with Reported Tests on Ethereum

The Israeli central bank has reportedly completed a test – under observation – for a central bank digital currency (CBDC) using Ethereum’s technology. The statement was made by Israeli financial news site Globes and was later reported by BNN Bloomberg.

Globes sources for their statements are not disclosed: The report claims that the Bank of Israel (BOI) completed its pilot in a closed test environment based on the architecture of Ethereum digital wallets.

Globes also stated that during the test, BOI successfully tested the ability to programmatically transfer car title certificates using an untraceable digital token (NFT) and completed a transaction where NFT payment is a condition of certificate transfer and vice versa. Transactions are instant without risk or intermediaries or trustees.

The app is a possible example of what payment service providers who are supposed to make digital wallets available to the public can build, according to the report. The BOI reportedly asked industry organizations to propose various intelligent applications that could be built on the digital shekel infrastructure in the future.

However, Globes argues that the central bank has generally not made its current experimental CBDC study public. As reported by Cointelegraph, the deputy governor of the BOI only announced that a preliminary CBDC pilot was actually underway during a discussion held earlier this month at the Fair Value Forum at the Herzeliya IDC.

Globes described the lieutenant governor’s admission as the result of being “cornered” and criticized the central bank for not paying enough attention to local industry when it began investigating the very complex CBDCs.

However, the BOI published a detailed report last month outlining the analysis and testing of various alternatives and models for a future CBDC, emphasizing that the proposed CBDC document and model is intended only as a basis for discussion, not a blueprint:

“This draft does not constitute a decision by the Bank of Israel on the properties of the digital shekel, if issued. This draft model forms the basis for the discussion and weighing of alternatives by the problem-solving working groups of the Bank of Israel and, after the publication of this document, will also serve as a basis for discussion in the Israeli professional world about the properties required for the digital shekel. “

Related: Israel’s central bank floats potential digital shekel with new plan of action

This commitment to CBDCs signals new dynamism and interest in CBDCs in the institution after a group led by former Governor Dr. Karnit Flug had recommended not to issue digital shekels until the end of the day.

While the May BOI report makes no mention of Ethereum, it notes that “the various opportunities the digital shekel could offer for payment system innovation in the Israeli economy,” including smart contracts, programmable money, and the like.

The May BOI report also makes no mention of smart apps or NFTs. However, it points out the possible advantages of using distributed ledger technology over existing, centralized technologies for different parts of the digital shekel ecosystem.

The bank’s report also highlights the interdependence of developments in digital identity technologies and CBDCs, pointing to the benefits of conducting a proof of concept that can help an organization understand the relevance, risks and benefits of the digital shekel for the Israeli economy as a whole.