Bank of Israel Governor Rejects Tax Authority Chief's Call to Abolish 200 Shekel Note

The Bank of Israel has firmly rejected statements made by the Director of the Tax Authority, Shai Aharonovich, suggesting the abolition of the 200 shekel banknote and potentially cash usage altogether in Israel. In a statement released Monday, the central bank clarified that the authority to cancel banknotes rests solely with the Governor of the Bank of Israel. The bank emphasized that no professional basis has been presented to justify canceling any specific banknote. It also noted that no country has completely abolished cash. Therefore, the Governor has no intention of exercising his authority to cancel any banknote or alter the mix of notes in circulation.

Aharonovich had proposed the idea earlier on Monday at an annual conference of the Tax Consultants Association in Eilat. He argued that such a move could be a significant step in combating the black economy, potentially increasing state tax revenues and helping to fund high defense expenditures. He estimated that eliminating cash usage could generate an additional 20 to 30 billion shekels in tax collection. Aharonovich also warned that the 2027-2028 budget period would be "cruel," necessitating significant new funding sources, either through tax hikes or budget cuts. He mentioned that the Ministry of Finance, Tax Authority, Budget Division, and Chief Economist are working on proposals for the 2027 budget to present alternatives to the government and the next finance minister.

The proposal to abolish the 200 shekel note is not new and has surfaced periodically as part of efforts to combat the black economy and tax evasion. The underlying assumption is that high-value banknotes facilitate the holding of large sums of cash and unreported transactions. However, canceling the note does not guarantee that the money will enter the banking system or that income will be reported. Israel has already taken steps to reduce cash usage, including a law enacted in 2019 that limits cash payments in certain transactions to combat tax evasion and money laundering. The Bank of Israel's opposition highlights the difference between limiting cash transactions and abolishing cash itself, noting that cash also serves non-economic purposes, such as enabling transactions independent of digital systems, providing payment options for the unbanked, and acting as a backup during system failures. The central bank's stance suggests the debate extends beyond the effectiveness of combating the black economy to the extent to which the state should restrict legal payment methods to boost tax collection.