The Bank of Israel has teamed up with the Hong Kong Monetary Authority to test a new digital currency and look into cyber security risks. The joint project will use a two-tier central bank digital currency (CBDC). It will be issued by the central bank and then distributed by financial intermediaries such as banks. Israel is coming around to explore the idea of a CBDC after shelving its initial effort in 2018 when a team set up by the central bank recommended against issuing a digital version of the shekel. The retail CBDC being tested by Israel and Hong Kong is designed to allow the intermediaries to handle it with no financial exposure to their customers. The team will assess whether this makes it less vulnerable to cyber attacks. The Bank for International Settlements’ Innovation Unit will also take part in the trial.
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