A Nation That Regulates Alone: Israel’s Quest to Build a Truly Global CBDC

On November 29, 2021, Israel’s Central Bank announced its intentions to develop the Digital Shekel, a Central Bank Digital Currency (CBDC).[1] Israel is not the first nation to develop a CBDC.[2] China successfully built the digital yuan but it is primarily designed to stay within China’s firewalls.[3] Thus, there is a void in the global financial market for a CBDC that can be utilized internationally for instantaneous and secure payments and money transfers.

The International Monetary Fund (IMF) strongly disapproved of their decision due to the great risks CBDC presents to domestic, regional, and international financial stability.[4] Stablecoins allow individuals to transact without an intermediary institution at much quicker speeds and with lower friction costs.[5] CBDC also provide individuals living in nations with weak currencies the opportunity to prevent their savings from shrinking in a short time span while also maintaining their purchasing power.[6] Israel’s decision to develop its own CBDC surprised some analysts since the Shekel is not considered one of the world’s strongest currencies. [7] However, Israel is seeking to leverage its highly skilled labor force to create a digital currency that will supplant the current mediums for cross-border transactions in the Middle East, Africa, and parts of Asia.[8]

After the Joint Comprehensive Plan of Action (JCPOA), Israel’s trust in international institutions further diminished.[9] Seeking to decrease their dependence on the United States, United Kingdom, and Germany, Israel began forming unlikely alliances with regional neighbors to shift the balance of power away from Iran and their subsidiary forces.[10] Israel’s Digital Shekel provides the nation with another avenue to build unlikely alliances and make other countries dependent on the success of Israel. Unlike China’s CBDC, Israel will likely strive to have as many people as possible adopt the Digital Shekel as their primary currency for routine transactions. Typically, transferring money around the world requires two days or more to clear, and payment processors take a large fee.[11] With the Digital Shekel, these transactions can take place nearly instantaneously with significantly lower costs than those offered by remittance and payment processing companies.

In nations without the necessary financial infrastructure, anyone with access to WIFI can receive their money through a digital bank account to manage their money and transact with anyone around the world. The more people that adopt Israel’s CBDC, the less likely their respective governments will challenge Israel in international forums such as the United Nations and the International Criminal Court because their constituents will feel the economic cost associated with pressure against Israel. Thus, widespread adoption of the Digital Shekel can provide Israel with a shield against international sanctions. Israel is currently far away from successfully implementing this new, lofty, digital barrier. However, if Israel succeeds, the Digital Shekel can provide Israel with unprecedented security in forums Israel typically resents while simultaneously paving new avenues for alliances that were once unimaginable.

Matthew Schecter is a staff member of Fordham International Law Journal Volume XLV.

This is a student blog post and in no way represents the views of the Fordham International Law Journal.
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[1] See Steven Scheer, Bank of Israel Accelerating Preparations for Digital Currency, Reuters (Nov. 29, 2021), https://www.reuters.com/markets/currencies/bank-israel-accelerating-preparations-digital-currency-governor-2021-11-29/.

[2] See Mario Quiroz-Gutierrez, These 9 Countries Are Trying to Create Their Own Digital Currencies to Beat Crypto, Fortune (Jan. 13, 2022), https://fortune.com/2022/01/13/9-countries-central-digital-currencies-crypto/.

[3] See Digital Yuan Gives China a New Tool to Strike Back at Critics, Bloomberg (Apr. 20, 2021) https://www.bloomberg.com/news/articles/2021-04-20/digital-yuan-gives-china-a-new-tool-to-strike-back-at-critics. (Citing People’s Bank of China Deputy Govenor Li Bo stating that the digital Yuan is “primarily for domestic use.”).

[4] See Jennifer Schonberger, IMF Warns Crypto Rout Could Lead to Systemic Risk, Backs Fed Digital Coin, Yahoo Finance (Jan. 27, 2022), https://finance.yahoo.com/news/imf-warns-crypto-winter-could-lead-to-systemic-risk-backs-fed-digital-coin-224508066.html; Dimitris Drakopoulos, Fabio Natalucci, & Evan Papageorgiou, Cyrpto Boom Poses New Challenges to Financial Stability, IMF Blog (Oct. 1, 2021) https://blogs.imf.org/2021/10/01/crypto-boom-poses-new-challenges-to-financial-stability/.

[5] See Alyssa Hertig, What Is A Stablecoin?, CoinDesk (Oct. 14, 2021) https://www.coindesk.com/learn/what-is-a-stablecoin/.

[6] See MacKenzie Sigalos, Bitcoin’s Wild Price Moves Stem From its Design – You’ll Need Strong Nerves to Trade it, CNBC (May 20, 2021) https://www.cnbc.com/2021/05/19/why-is-bitcoin-so-volatile.html (Describing how Bitcoin’s volatility is part of the investment).

[7] See Melissa Parietti, 7 Currencies Worth More Than the U.S. Dollar, Investopedia (Nov. 19, 2021) https://www.investopedia.com/articles/forex/030216/6-strongest-currencies-vs-us-dollar-2016.asp; Ryan Thaxton, The Top 10 Strongest Currencies in the World in 2022, Forex (Oct. 20, 2021) https://www.forex.com/ie/news-and-analysis/what-is-the-strongest-currency-in-the-world/.

[8] See Adrian Bridgwater, How Israel Became A Technology Startup Nation, Forbes (Feb. 21, 2020) https://www.forbes.com/sites/adrianbridgwater/2020/02/21/how-israel-became-a-technology-startup-nation/; The Israeli Technological Eco-system, Deloitte https://www2.deloitte.com/il/en/pages/innovation/article/the_israeli_technological_eco-system.html; Dan Senor & Saul Singer, Start-Up Nation, (Council on Foreign Relations, 2011).

[9] See The United Nations, Israel, and Anti-Semitism, Anti-Defamation League (Nov. 2019) https://www.adl.org/resources/backgrounders/the-united-nations-israel-and-anti-semitism (Outlining Israel’s history in the United Nations, the discrimination it faced, and why is distrusts the United Nations). See also Stephen M. Walt, It’s Time to End the ‘Special Relationship’ With Israel, Foreign Policy (May 27, 2021) https://foreignpolicy.com/2021/05/27/its-time-to-end-the-special-relationship-with-israel/.

[10] See Steven A. Cook, What’s Behind the New Israel-UAE Peace Deal?, Council on Foreign Relations (Aug. 17, 2020) https://www.cfr.org/in-brief/whats-behind-new-israel-uae-peace-deal; Bruce Riedel & Natan Sachs, Israel, Jordan, and the UAE’s Energy Deal is Good News, Brookings (Nov. 23, 2021) https://www.brookings.edu/blog/order-from-chaos/2021/11/23/israel-jordan-and-the-uaes-energy-deal-is-good-news/.

[11] See Amine Soufaih, Revolutionizing International Remittance Payments Using Cryptocurrency and Blockchain-based Technology, 75 Social Impact Research Experience Sept. 2020,https://repository.upenn.edu/cgi/viewcontent.cgi?article=1085&context=sire.