![\"\"](\"https:\/\/www.cryptocabaret.com\/wp-content\/uploads\/2022\/03\/shutterstock_624682679.jpg\")
<\/p>\n<\/p>\n
Israel\u2019s central bank says the public\u2019s adoption of the digital shekel is not expected \u201cto materially affect the banking system.\u201d The bank, however, warns that any issuance of such digital currency will likely result in a decline of the volume of the public\u2019s deposits. <\/strong><\/p>\n Israel\u2019s central bank, the Bank of Israel (BOI), has said its analysis of the proposed digital shekel\u2019s possible impact on banking stability showed that the expected effect is not as significant as previously thought.<\/p>\n However, the bank\u2019s analysis notes \u201cthe decline in the volume of the public\u2019s deposits\u201d held in banks following the issuance of digital shekel, would nonetheless lead to \u201csome increase in the banking system\u2019s interest expenses.\u201d The same might also lead to an erosion of the banking system\u2019s net profit, the BOI warned.<\/p>\n While the central bank said it has not yet made a decision to issue the central bank digital currency (CBDC), in its recently released statement, the BOI revealed it \u201cis building an action plan for the potential issuance\u201d of such a digital currency.<\/p>\n The statement<\/a> also makes reference to a paper<\/a> that was published by the BOI\u2019s steering committee. In that paper, the committee examined the bank\u2019s motivations for issuing the CBDC \u2014 also known as SHAKED \u2014 as well as the ramifications of such a digital currency on financial intermediation.<\/p>\n<\/p>\n Meanwhile, the BOI statement also discusses some of the key findings from the steering committee\u2019s May 2021 paper. The BOI statement notes:<\/p>\n Transferring a certain volume of money from the public\u2019s deposits to SHAKED would have various effects on the balance sheets of the banking system and of the Bank of Israel. The banking system\u2019s balance sheet would contract due to the decline in the \u2018Public\u2019s deposits\u2019 item on the liabilities side and in the \u2018Deposits at the Bank of Israel\u2019 on the assets side.<\/p>\n<\/blockquote>\n The BOI adds that in the event the banking system attempts to maintain the credit portfolio to the public at levels prior to the CBDC launch, that development would \u201cerode banks\u2019 liquidity ratios to a certain extent.\u201d<\/p>\n Besides looking at the potential impact that the CBDC might have on the banking system and the economy, the BOI said it will also \u201cexamine other issues that arise as part of the research and preparation toward a potential issuance of a digital shekel in the future.\u201d<\/p>\n The central bank concludes its statement by reiterating that it has not made a decision to issue the digital shekel just yet.<\/p>\nIncrease in the Banking System\u2019s Interest Expenses<\/h2>\n
Erosion of Banks\u2019 Liquidity Ratios<\/h2>\n
\n