Prime Minister Benjamin Netanyahu proposed that Israel prepare an alternative financial system using cryptocurrency and blockchain technology to bypass potential international banking sanctions, drawing immediate criticism from the Bank of Israel and leading economists just days before the October 27 Knesset election.
The Remarks and Their Context
In an interview with Israel's Channel 10 economic network on October 22, Netanyahu expressed concern over possible sanctions on Israeli banks and called for preparation of a "bypass economy." He stated, "There could be sanctions, and sanctions on banks so you need to set up a bypass economy. You know, there are currencies that can bypass (sanctions). We are also working on that." When asked specifically about cryptocurrency, he replied, "Very true, very true," and added that blockchain technology was another possibility. He said he had already asked advisers to prepare a plan for its utilization.
The comments came amid mounting international pressure on Israel over settlement policy in the West Bank. Last month, Britain, France and Canada announced measures to block imports from Israeli settlements, part of a broader pattern of actions by traditional allies. Netanyahu also warned in the same interview that Israel should prepare for the eventual end of U.S. military aid, saying "tens of billions of US aid dollars to the defense ministry, get used to, won’t keep coming."
Similar reporting from The Times of Israel and Reuters confirmed the details of the interview and the prime minister's affirmative response on cryptocurrency.
Central Bank and Expert Rebuttals
The Bank of Israel issued a rare public rebuke on October 24, stating that cryptocurrencies "cannot serve as a route for bypassing sanctions." The central bank emphasized that "the right course for Israel's economy is to preserve our economic relations with our main trading partners, and to focus on preventing sanctions and their negative impact on the economy." It noted that addressing sanctions falls under the responsibility of the political leadership.
Netanyahu responded later that day, saying he would take the objections into account but would do what he thinks is right. He clarified that cryptocurrency is one tool among several and that it is not certain it would be used. In a separate interview with Channel 14, he defended his record on economic prosperity while acknowledging the criticism.
A group of 109 senior economists, business executives, and former officials, including two Nobel laureates, released a letter on October 25 expressing "grave concern and anxiety." They warned of "irreversible damage" to investment, the high-tech sector, and living standards. The signatories accused the proposal of demonstrating "a fundamental lack of understanding" and described it as a "bizarre solution commonly used by criminal organizations." Specific risks cited included the inability of Israelis to use credit cards abroad, blocked access to sites like Amazon, difficulties for foreign workers sending remittances, and hospitals struggling to purchase equipment and medicines.
Opposition figures echoed these concerns. Yair Lapid compared the idea to policies in Iran, Russia, and Venezuela. Former Finance Minister Avigdor Liberman said Netanyahu was admitting the danger of isolation but offering only a sanctions-bypassing plan instead of prevention strategies. Reporting from The Times of Israel and Bloomberg via Yahoo Finance detailed these reactions.
Can Crypto Actually Work for Sanctions Evasion?
Cryptocurrency transactions occur on decentralized blockchains that do not rely on traditional banking intermediaries, potentially allowing payments when correspondent banking relationships are severed. In theory, businesses could use Bitcoin, stablecoins, or other digital assets to pay overseas suppliers or receive funds if Israeli banks face restrictions on international transfers.
However, experts and reports note significant limitations. Many public blockchain networks allow transactions to be traced, and major platforms have implemented compliance measures in response to regulatory pressure. The Bank of Israel and economists argued that crypto does not provide a reliable workaround and that even discussing such plans could harm Israel's standing with trading partners. Al Jazeera reported that while crypto can create alternative channels, it is not foolproof due to traceability.
Comparisons in coverage to sanctioned nations highlight that those countries have turned to crypto amid isolation, yet their economies have still faced severe constraints. Israel's tech-export-driven economy, which relies heavily on seamless international financial flows, would likely face different challenges than resource-based economies under long-term sanctions.
Similar discussions of crypto in global payments and policy appear in coverage of broader industry trends, such as stablecoin integrations with traditional finance players.
Political Timing and Economic Stakes
The remarks surfaced four days before the election, where Netanyahu faces a challenge from former general Gadi Eisenkot. Critics argued the comments amounted to fearmongering or an admission of diplomatic failure. Supporters viewed them as prudent contingency planning for a government facing shifting alliances.
Israel's economy has benefited from strong ties to Western markets and a robust high-tech sector. A loss of correspondent banking services could disrupt everything from payroll to imports of critical goods. Economists in the open letter projected soaring unemployment, vanishing foreign investment, and a collapse in economic standing if sanctions materialize and workarounds prove ineffective.
Netanyahu's team has not released details of any formal plan, and some economic ministry officials reportedly were unaware of specific initiatives. The focus remains on whether political efforts to avert sanctions or the proposed technical alternatives represent the better path forward.
Looking Ahead
As election results approach, the debate underscores tensions between short-term contingency ideas and long-term diplomatic strategy. The Bank of Israel and business leaders have urged prioritization of preserving existing relationships over exploring decentralized alternatives. Whether any blockchain preparations advance will depend on the outcome of Tuesday's vote and evolving international responses to Israel's policies.
Further analysis of crypto's role in cross-border finance continues in related coverage, including pieces on stablecoin growth and policy developments.
