Israel is preparing to implement stricter regulations for stablecoins as their use expands beyond crypto trading into mainstream financial activities. At a recent conference in Tel Aviv, Bank of Israel officials outlined a plan to increase oversight while simultaneously advancing the development of a state-backed digital shekel.

The central bank’s focus has sharpened as stablecoin adoption grows, with officials noting that these private digital currencies are increasingly used for everyday payments, trading, and remittances. This growing integration into the financial system has prompted a reassessment of the potential risks involved.

Stricter Rules for a Burgeoning Market

Bank of Israel Governor Amir Yaron confirmed that regulatory requirements will intensify to match the sector’s rapid expansion. The global stablecoin market has swelled to a capitalization of over $300 billion, with monthly transaction volumes exceeding $2 trillion. Officials highlighted that these figures are comparable to the balance sheets of mid-sized international commercial banks.

A key concern for regulators is the systemic risk posed by a heavy reliance on a few major issuers, such as Tether and Circle. To mitigate these risks, Israel plans to enforce stronger regulations, likely including requirements for stablecoin issuers to hold 1:1 reserves in highly liquid assets.

The Digital Shekel as a State-Backed Alternative

Alongside its plans for private stablecoins, the Bank of Israel is pushing forward with its own Central Bank Digital Currency (CBDC), the digital shekel. The project is seen as a strategic initiative to ensure the state remains central to payments innovation and infrastructure security.

The government aims to create a digital currency for broad public use. According to the current timeline, the Bank of Israel expects to finalize its recommendations by the end of 2024 and has established a project roadmap extending to 2026.