Andrew Abir: Remarks - Bank of Israel's Payment Systems
Conference
Remarks by Mr Andrew Abir, Deputy Governor of the Bank of Israel, at the Bank of
Israel's Payment Systems Conference, Tel Aviv, 16 November 2022.
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Good morning.
I am pleased to be here with you at a conference that will deal with the planning of the
new world of payments. It is also important to me to emphasize the extent to which we
see the development of an innovative payments system in Israel as a strategic goal of
the Bank of Israel.
The central bank's money stands at the center of each country's payments system, and
that is what forms the foundation of the public's trust in the system. There are currently
two types of central bank currency. The first is one you are all familiar with -
cash. Historically, trust in the banking system was based on the public's understanding
that it could always withdraw money from its accounts at a commercial bank and ask for
central bank currency. Normally, no one even thinks about this. But it becomes
relevant for many people during emergencies. We make sure to routinely maintain an
efficient cash distribution system, embed advanced security features so that it will be
very difficult to impossible to counterfeit banknotes, and maintain the public's trust in
cash. But technology is changing, and in view of the decline in the use of cash, we are
considering the launch of a central bank digital currency so that even in the digital era,
central bank currency will remain at the center of the retail payments system.
The second type of central bank money is in the wholesale system - the banking
system's accounts with the Bank of Israel. These accounts also increase the public's
trust in the banking system. We have seen during crises that banks may prefer
increasing their balances at the central bank to enable them to pay each other with
central bank currency. What essentially connects wholesale money with the retail
payments system is the local RTGS system, called ZAHAV. And just like it is important
to use to increase the efficiency and dependability of the cash supply system, it is also
important to use to ensure the efficiency, dependability, innovation, and readiness for
the future of this system.
ZAHAV is a national network for all financial transactions in the economy. Its stability
and availability is a precondition for management of an advanced economy, and the
basis for conducting monetary policy. Therefore, RTGS systems around the world are
managed by the central banks.
The new ZAHAV system has interfaces with other payment systems in the economy,
which enables it to create synergy in the world of payments. In addition, by replacing it,
we can upgrade the system's protocol to the new ISO 20022 global standard, which will
bring additional advantages to the entire economy, mainly by increasing the supply and
variety of financial services available to the public.
The ZAHAV upgrade is consistent with one of the Bank of Israel's main strategic
principles: positioning Israel at the technological forefront with regard to the world of
payments. Obviously, there remains a long road ahead of us, but together with the
implementation of the EMV standard, the implementation of faster payments, the
development of an infrastructure for digital checks, the removal of barriers to fintech
firms, and other actions, we are definitely on the right track.
As I noted, the upgrade of the system's protocol to ISO20022 provides an opportunity
with immense potential - for advancing it, improving the consumer's user experience for
both business and private customers, adding an immense amount of tremendously
valuable - and no less important, structured-information with every financial transaction.
We believe that with the cooperation of the entire financial ecosystem in Israel, we will
properly implement the standard in a way that the changes and business advantages
will be significant.