Paper – Logical architecture for a digital shekel system. In this model, end users will access the central bank digital currency through private-sector intermediaries.
The Bank of Israel’s approach is that the intermediaries that provide end users with access to the digital shekel system would not develop financial exposure.
Similar to other central banks that are considering a potential design and issuance of a retail central bank digital currency (CBDC), the Bank of Israel is examining a two-tier model for operating a digital shekel system. In this model, end users will access the central bank digital currency through private-sector intermediaries. This paper examines architecture alternatives for implementing the two-tiered system. The paper was written as part of the design process of a digital shekel.
The issue of the architecture of a two-tier model has recently taken on greater significance in the work of other central banks that are examining the possible issuance of a CBDC. For instance, the European Central Bank and the Bank of England carried out technological tests and joint work with the private sector to examine this issue.
The recently completed “ Project Sela” in which the Bank of Israel worked together with the BIS Innovation Hub and the Hong Kong Monetary Authority (HKMA) featured the implementation of a certain two-tier model architecture based on technology that was examined in the project and business requirements posed by the project’s participants. In particular, the architecture implemented the Bank of Israel’s approach that the intermediaries that provide end users with access to the digital shekel system would not develop financial exposure. This approach is also the basis for the architecture proposed in this paper, which was inspired by the architecture in „Project Sela”.
The alternatives in the paper were examined with an emphasis on a number of main topics: types of participants in the system; functional distribution between the participants in providing an end-to-end solution; central bank digital currency distribution model to end users; and various alternatives for realizing the back-end layer—or system “engine”—that will be established and managed by the Bank of Israel.
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