The ‘Digital Shekel Challenge’ advancing Israel’s economic future

A wartime government has to spin many plates, especially in departments dealing with defense and how to protect its population through military and diplomatic means.

That being said, the rest of the country doesn’t simply go on pause until the war is over. Since October 7, governmental and non-governmental bodies have stepped up to the plate to advance several aspects of Israeli society. This includes strides to advance Israel’s economy even in the shadow of war—which is where Israel’s tech sector is set to play a starring role.

Part of these advancements include potentially establishing a Central Bank Digital Currency, or CBDC for short—a digital form of a country’s fiat currency that is issued by its central bank. They function similarly to cryptocurrencies, but a key difference is that a CBDC’s value is fixed by the central bank and is equivalent to the country's fiat currency.

Countries worldwide have been inching closer toward either developing or rolling out a CBDC of their own for the better part of a decade. So far, only Jamaica, Nigeria, and the Bahamas have fully launched a sovereign CBDC, but nations including Australia, Japan, South Korea, China, and the United Arab Emirates (among roughly 30 others) have launched pilot projects to establish a digital currency.

Although this shouldn’t surprise anyone, given Israel’s consistent support for tech innovation, the Bank of Israel is also taking a significant step forward in launching a CBDC.

To be clear, the Bank of Israel has been exploring the concept of a national digital currency as early as 2017 by establishing research panels and initiatives to investigate how it can be implemented. However, CBDCs are highly complex financial tools to develop with wide-spanning socioeconomic implications, so it also shouldn’t surprise anyone that it took a while to develop and research how to do it properly.

With that in mind, it does look like the momentum is picking up. Recently, the Bank of Israel commenced its “Digital Shekel Challenge,” an initiative for innovation leaders in the financial tech, or fintech, space to spearhead the creation of Israel’s digital ledger.

A united effort

Announced last month, the “Digital Shekel Challenge” includes 14 Israel-based companies hand-picked by the central bank—spanning from fintech mainstays like PayPal Israel to leading startups putting cryptocurrency and fiat cooperation at the forefront like Kima Finance. Each company selected for the project will have access to a sandbox to build their respective proposed use cases for a Shekel-based digital currency, which will then be presented at a conference at the end of October.

While it may seem unfair at first glance to pit massive companies against startups and smaller businesses in such a challenge, it would be wrong to underestimate the power startups have in this context. The trump card startups like Kima have over larger companies is that they have been building products that merge the worlds of cryptocurrencies and fiat since their inception. Likewise, their agility to pivot and try out new approaches faster could potentially work in their favor.

However, this challenge isn’t just about who can build the shiniest product. Each participant is put to the test to examine how a CBDC would impact Israeli society as a whole. Of course, money isn’t everything, but it can dramatically change societal norms, markets, and even governance.

Unleashing a CBDC can’t happen overnight, nor does it happen in a vacuum. It requires a robust infrastructure that can account for the potential challenges of its rollout and acceptance—all of which must be addressed by the participants in this project.

More broadly, the “Digital Shekel Challenge” signifies that Israel is a country taking its economic future seriously. As the economic sector and tech industry move closer, they will eventually become inextricably linked. Israel’s economy alone has been fuelled by tech innovation for decades, and this challenge reaffirms the commitment to Israeli talent to help define its future. 

With the sandbox opening this month, the project’s potential success in establishing Israel’s digital currency further proves how innovation can help advance a country’s overall standing, both domestically and internationally.