The Bank of Israel is taking a dual approach to digital currency management by implementing stricter regulations on stablecoins while simultaneously advancing its plans for a central bank digital currency (CBDC). The central bank’s digital shekel initiative is progressing according to a 2026 roadmap, with stablecoin oversight being positioned as essential for maintaining financial stability and addressing concentrated market risks.
Israel’s central bank has identified stablecoins as a systemically important component of digital finance, citing monthly trading volumes approaching $2 trillion and a global market value exceeding $4 trillion. The bank is particularly concerned about the high concentration of activity among a few issuers that account for approximately 99% of all flows, creating potential systemic vulnerabilities.
In response to these concerns, the Bank of Israel has implemented several regulatory measures, including banning algorithmic stablecoins and requiring approved stablecoins to maintain 1:1 reserves with strict liquidity buffers. These positions were informed by a public consultation launched in February 2023, which helped guide the bank’s preference for clear, enforceable safeguards against risks from issuer failure or de-pegging events.
Governor Amir Yaron has emphasized that stablecoins can no longer be treated as marginal assets and require regulation proportionate to their significant market presence.
Stablecoin Regulation Targets Market Concentration and Reserve Risks
While strengthening stablecoin oversight, the central bank is simultaneously developing the digital shekel as a direct, risk-free alternative to cash and bank deposits. A preliminary design document was published on March 3, 2025, outlining the CBDC as a digital form of central bank liability for public use.
The central bank has engaged the public through initiatives like the “Digital Shekel Challenge” that concluded on October 31, 2024, to gather technical input on architecture and user experience. The CBDC is positioned as a foundation for faster, cheaper, and more innovative payment services while maintaining central bank liability as the ultimate trust layer.
The Bank of Israel views the digital shekel as a sovereign anchor in the payments ecosystem that will complement existing financial infrastructure.
According to the current schedule, the Bank of Israel is working toward implementing its digital shekel roadmap by 2026, which will serve as the next verified milestone for the project.
The twin approach of tightening rules around private stablecoins while developing a retail CBDC aims to reduce systemic exposure while offering a sovereign alternative for digital payments.
