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Israel and Hong Kong trial a new digital currency and its potential cyber risks

Israel and Hong Kong trial a new digital currency and its potential cyber risks

The carnage of the cryptocurrency market has continued despite some short-lived relief but digital assets are still growing in popularity, and two major financial authorities have joined forces to explore digital currency options, which would allow them to regulate crypto easily.

Indeed, the Bank of Israel has partnered with the Hong Kong Monetary Authority to launch a trial of a new digital currency, testing its use against cyber security risks, the Bank of Israel said, according to a Bloomberg report on June 16.

The report also cited a statement by the two central banks, which read that the project’s deployment is set to begin in the third quarter of 2022 and “will use a two-tier central bank digital currency (CBDC).”

As per the report, the retail CBDC, which Israel and Hong Kong are testing, “will allow the intermediaries to handle it with no financial exposure to their customers, and will assess whether this makes it less vulnerable to cyber attacks.”

The reasoning behind this is that such a CBDC would carry “less financial risk for the customer, more liquidity, lower costs, increased competition, and wider access,” as per the Bank of Israel.

Interestingly, Israel had started to entertain the idea of a CBDC before but gave up on its tests back in 2018 due to a team established by the central bank advising against issuing a digital shekel.

CBDCs around the world

Opinions and practices involving CBDCs vary from one region to the other. The People’s Bank of China (PBOC) is testing its CBDC by organizing digital yuan giveaways, with the one in late April seeing 15 million yuan in digital RMB (e-CNY) offered to local citizens in Shenzhen’s Futian district.

On the other hand, lawmakers in the United Kingdom rejected in January the introduction of the proposed “Britcoin” CBDC due to it lacking a convincing case at the time and carrying significant risks to the region’s economy.

That said, the deputy governor of the Reserve Bank of India (RBI), T. Rabi Sankar, believes that the emergence of CBDCs will mark the end of private cryptocurrencies, as Finbold reported in early June.

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