On August 26, 2018, the Jerusalem Post published an interesting story about the possibility of Israel adopting a state-backed cryptocurrency as Venezuela recently did, albeit for entirely different reasons.
While Venezuela recently launched the Petro as a desperate Hail Mary as it faces 6-figure inflation, Israel’s Finance Ministry and Central Bank are reportedly looking into a national cryptocurrency as a way to fight tax evasion. What is happening correctly, and what is such a crypto’s probability of succeeding?
Israel’s Crypto Dalliance
Since bitcoin’s famous moonshot period from late 2017 into early 2018, cryptocurrency has become a severe government issue everywhere from Canada to Venezuela. Nicholas Maduro recently made headlines for launching the world’s first state-backed cryptocurrency called the Petro.
Amidst driving inflation, record unemployment and crippling shortages of food and necessary supplies, the Petro is Venezuela’s last-ditch attempt at salvaging its economy by pegging its currency value to its oil production.
Authorities in Jerusalem and Tel-Aviv on the other hand, are looking into creating Israeli state-backed crypto for an altogether different set of reasons. According to the Jerusalem Post article, the Ministry of Finance and the Bank of Israel are considering launching an official Israeli digital currency as a tool to help the state fight against tax evasion.
The plan is for the “digital shekel” to be identical in value to the physical shekel, but with the principal advantage being that as a blockchain-based currency, all transactions have a permanent and indelible record, which would be an invaluable tool for the state in the fight against tax evasion.
If that does not sound particularly significant, consider that Israel like the U.S. has a regulatory opinion of cryptocurrencies as property and not money. This means that potentially every transaction involving cryptocurrency including crypto trading is subject to a hefty amount of tax. Under Israeli tax codes, corporate organizations pay 46 percent, while private individuals pay 25 percent.
Crypto Space Doesn’t Seem Bothered
Despite this, Israel’s existing crypto industry is not showing any sign of slowing down anytime soon. Israel is home to some of the world’s most prolific blockchain and cryptocurrency innovators. Consistently listed among the world’s ten most innovative countries by Bloomberg, Israel’s banks have become involved in cryptocurrency, although not in the way market traders would necessarily hope for.
The Bank of Hapoalim and Microsoft Azure have partnered in the past to put financial assets on a blockchain, with the bank hoping to leverage Microsoft Azure’s industry-leading knowledge of blockchain development to enable it to carry out faster and more secure transactions.
Earlier this year, Israel’s Supreme Court also ruled that another bank – Bank Leumi – cannot legally terminate customer accounts because of cryptocurrency transactions. This and other rulings tell an obvious story about Israel’s position on cryptocurrency adoption.
From altruistic innovations to the more generic use cases like crypto-enabled casinos, Israeli regulators have generally adopted a light touch regulatory model, and this has encouraged greater adoption of cryptocurrencies across the board.
The net result of all of this on the Israeli government’s plan for a “digital shekel” is that it just might work. While purists will no doubt argue that just like in the case of Venezuela’s Petro, a cryptocurrency by definition cannot be government-issued or sanctioned, a look at Israel’s regulatory and judicial precedent suggests that if any jurisdiction on earth can pull off this ambitious plan, it will likely be Israel.