Netanyahu Explores Crypto as Hedge Against Potential Sanctions

Prime Minister Benjamin Netanyahu has suggested that Israel should prepare for the possibility of economic and banking sanctions, proposing the exploration of cryptocurrency and blockchain technology as a potential workaround. Speaking recently, Netanyahu indicated that a plan is being developed to create an alternative economic system, mentioning blockchain as one of the examined options. This statement comes amid growing concerns about international sanctions potentially targeting Israel.

The article examines the feasibility of using cryptocurrency to circumvent sanctions, drawing parallels with countries like Russia and Iran, which have explored digital currencies for international trade and value transfer amidst financial restrictions. However, it highlights that while technology can facilitate digital asset transfers without traditional banks, it does not eliminate the need for foreign suppliers, financing, or entities willing to conduct business. Furthermore, the use of crypto does not legalize prohibited transactions or negate the applicability of sanctions.

Netanyahu's proposal is interpreted as potentially aiming for either a localized payment channel to mitigate disruptions in the banking system or a more comprehensive infrastructure for continued global trade under sanctions. The former might offer a partial solution, while the latter presents a significant economic challenge that cryptocurrency alone cannot resolve. The article notes that while Russia has permitted digital currency use in certain foreign trade payments, and Iran has explored digital assets, these are not complete replacements for the banking system and remain subject to legal limitations and enforcement.

The piece also questions the impact on Israel's international legitimacy and the willingness of foreign banks to engage with Israeli entities if such a system is implemented. While banks are not obligated to sever ties solely based on blockchain usage, they might reduce operations due to concerns about legal exposure and compliance risks. The article distinguishes between using blockchain as a payment infrastructure, which is already being explored globally, and attempting to replace the international banking system with it, emphasizing that a crypto-based system still requires counterparties, conversion facilities, and access to foreign markets and suppliers.

Regarding existing regulatory efforts in Israel, the article clarifies that a process is underway to regulate digital assets, but this differs from Netanyahu's proposed sanctions-circumvention system. A draft amendment from the Bank of Israel aims to allow banks to provide payment services related to virtual currencies, subject to risk assessments, to support sector growth while managing risks like money laundering. This initiative is not designed as an alternative financial system for international sanctions scenarios. The article concludes that while crypto might offer a backup channel for specific payments, it is not a full substitute for international banking relationships or a guarantee against the consequences of sanctions.