Creating a centralized cryptocurrency could be a way of reducing Israel's black economy, and the Bank of Israel is considering giving it a go, Reuters reports.
Currently, 22 percent of Israel's national output is estimated to derive from unregulated or illegal sources, a loss of approximately ILS50 billion ($5.76 billion) in tax revenues. The Israeli government has been trying to tackle the problem for a few years, and if the central bank were to give the go ahead, an anonymous source told Reuters, government officials would be ready to include the issue in the 2019 budget.
The Bank of Israel's interest in a digital version of the local Shekel is not so much inspired by bitcoin's recent popularity, which still leaves many highly skeptical, but by its potential to solve practical problems. As well as helping drain the black market, a digital payment system would speed up Israel's booming economy.
Not a National Bitcoin
Compared to the decentralized blockchain system underpinning Bitcoin, a nationally-issued cryptocurrency would be centralized and less prone to price volatility. The digital coin would also comply with money laundering rules, creating a safer space for investments.
“For the past few weeks the Bank of Israel has been looking at this matter, which has various aspects to it, including monetary and legal," the source said. "There are many central banks studying the subject. There is no operative plan at the moment and perhaps there may never be, but it is something the Bank of Israel is studying.”
But while a national digital currency is an appealing idea in several countries, including Sweden — which is considering launching a digital version of its Krona — and even Russia, it also has many critics. The governor of the Bank of England, Mark Carney, recently weighed in on the issue, saying that the idea has "fundamental problems."
Addressing the British parliament, Carney raised concerns about the financial stability of the system: “You create a situation where you can have an instantaneous run. So as soon as there were any concern, people can switch in their account at the Bank of England … There are many talents of the Bank of England, but I think credit allocation across the entire economy would not be a good idea,” Carney said.
For now, the future of nationally-issued digital currencies remains uncertain. But given they offer solutions to some of the modern economy's practical problems — including tax evasion, money laundering and slow payment systems — governments and banks are keeping the option open.