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- The Bank of Israel said cryptocurrencies cannot be used to bypass sanctions.
- Netanyahu says he will weigh the objection but make the decision himself.
- 109 economists, including Nobel laureates, warned of severe damage from financial isolation.
- Officials in the economic ministries report no operational plan behind the proposal.
Israel’s central bank has publicly rejected Prime Minister Benjamin Netanyahu’s idea that cryptocurrency and blockchain could keep the economy running under international banking sanctions. Netanyahu raised it on Friday, October 23, telling Channel 10 that Israel may need to set up a “bypass economy” and confirming that crypto was among the options his advisers were preparing. On Saturday the Bank of Israel replied that cryptocurrencies cannot serve as a means of circumventing sanctions and told the government to concentrate on preserving ties with its main trading partners. The clash comes days before Israelis vote in Tuesday’s Knesset election.
A Stablecoin Transfer Still Needs Someone Allowed to Accept It
Sanctions bind people and institutions, not payment rails. Yair Avidan, a former supervisor of banks at the Bank of Israel, argued that moving a transaction onto a blockchain leaves the legal obligations of every party exactly where they were. An Israeli importer can send USDT to a supplier in Germany within minutes. If German rules prohibit the deal, the supplier cannot legally take the money, and no European bank will convert it into euros.
Tomer Sharoni, chief executive of crypto intelligence firm Adresable, pointed to the ledger itself. Public blockchains record every transfer permanently, and compliance firms analyze them daily. Exchanges freeze accounts. Stablecoin issuers such as Tether can block tokens held at specific addresses.
Israel Already Uses the Same Tracing Tools Against Iran
Israel knows the enforcement side well. Its Defense Ministry sanctioned 37 cryptocurrency wallets used by Iran’s Revolutionary Guards to finance regional militant groups, holding more than 24 million shekels (about $8 million). Any government acting against Israeli entities would have identical methods available. Avigdor Liberman made that argument on the campaign trail and accused Netanyahu of having obstructed crypto regulation in the past.
109 Economists Compare the Risk to Russia, Iran and South Africa
On Sunday, the Economists’ Forum for Democracy published a statement signed by 109 economists, executives and former officials, including Nobel laureate Joel Mokyr, former governor Jacob Frenkel and Avidan himself. The signatories called the proposal puzzling and said exporters, investors and above all the tech sector could not function under international penalties. They drew comparisons with South Africa, Iran and Russia, warning of a steep fall in living standards.
The letter also described scenarios in which Israelis lose access to credit cards and international online shopping, while hospitals struggle to import equipment and medicines. These are forecasts, not current conditions. The concern for tech is concrete, though: Israeli startups raise money from US and European funds, sell abroad and often exit through foreign acquisitions, and every one of those steps relies on correspondent banking, the network of relationships that lets banks in different countries move money for each other.
Economic Ministries Say They Have Seen No Working Plan
Netanyahu answered the bank on Channel 14, saying he hears the resistance and takes it into account, but that he will act on his own judgment. He described crypto as one option among several, with its eventual use uncertain. In the original Channel 10 interview he had also said that US military aid will not last forever, a remark the economists cited as further evidence that he is preparing for isolation rather than trying to prevent it.
Officials in the economic ministries told Ynet they knew of no operational initiative, and senior figures in the Prime Minister’s Office were reportedly unaware of any team working on one. No bill, budget or timetable exists. The central bank’s statement does not legally stop the government from studying the idea, so describing the plan as cancelled would be premature.
Current Sanctions Hit Settlement Goods, Not Israeli Banks
The measures in force today are narrow. UK-led sanctions target the settlements in the occupied West Bank, although economists warn the effects could spread into Israel proper. Israel’s banking system has not been sanctioned. Netanyahu is planning for an escalation, and the central bank’s position is that preventing one is the government’s responsibility.
Israel Spent 2026 Writing Crypto Rules, Not Banning Crypto
The rejection is not hostility toward digital assets. Israelis can legally hold Bitcoin and generally pay 25% capital gains tax on profits. The Capital Market Authority licenses crypto service providers, and in July regulators proposed easier bank access for licensed firms. The Finance Ministry is advancing a stablecoin law partly modeled on the EU’s MiCA rules, and a shekel-pegged stablecoin, BILS, has already been approved. The industry still complains: the Crypto Companies Forum counts 168 firms with 3,346 employees that have raised $4.2 billion since 2013, and says slow legislation is pushing companies abroad.
Tuesday’s Vote Decides Whether the Idea Gets a Second Hearing
Maariv’s final poll gives the opposition bloc 54 seats and Netanyahu’s bloc 48, both short of the 61 needed to govern. Gadi Eisenkot, whose Yashar party leads Likud in most surveys, called the proposal a threat to economic and national security. If Netanyahu returns, the test will be whether his advisers deliver a written plan that regulators can review. An opposition-led coalition would more likely pick up the stablecoin and digital asset bills that have been stuck in government discussions since 2023.
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