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The Israeli digital shekel would record every transaction by mobile phone, thereby, making tax evasion more difficult, reported the Jerusalem Post, citing an anonymous financial official as saying.
The Bank of Israel has been examining the likelihood of a state-sponsored currency for several months, but the decision rests on the government if to give it a green signal or not.
The value of digital shekel reportedly will be equal to the value of physical shekel.
Cryptocurrencies allow parties to transact payments directly without a central intermediary, by means of blockchain technology.
The state-sponsored digital currencies are likely to be an attempt to compete with decentralized cryptocurrencies such as bitcoin.
So far, a state-sponsored digital currency doesn't exist anywhere in the world, the report said.