Israel's Central Bank Rejects PM's Crypto Sanctions Evasion Plan

The Bank of Israel issued a sharp rebuke on Saturday evening against Prime Minister Benjamin Netanyahu's proposal to use cryptocurrencies to circumvent potential banking sanctions. The central bank stated that the government's role is to prevent sanctions, not to adapt to them. "Cryptocurrencies cannot serve as a way to circumvent sanctions. For Israel's economy, it is correct to maintain economic relations with our main trading partners and focus on preventing sanctions and their negative impact on the economy," the Bank of Israel declared, emphasizing that these matters fall under the purview of political leadership.

Netanyahu had claimed in an interview that he had already ordered a plan for digital currencies, but economic ministries and even senior Prime Minister's Office staff were unaware of such a directive. The proposal drew criticism from former officials, economists, and tech executives, who argued that the technical ability to make a payment does not ensure its legality or the willingness of foreign partners to participate.

Former Banking Supervisor Yair Avidan explained that blockchain technology does not negate sanctions or participants' obligations, and that banks, payment companies, and trading partners are still necessary and not obligated to violate laws. He noted that blockchain can aid infrastructure during crises but is "not a cure for sanctions." Addressable CEO Tomer Sharony added that digital transactions leave traces and that the ability to transfer money does not guarantee acceptance by trading partners, suggesting crypto infrastructure should be developed for innovation, not as a sanctions loophole.

Professor Yair Zimon of Tel Aviv University warned that Israel's economy relies on foreign trade, investment, and international banking. He cautioned that attempting to replace this system with volatile cryptocurrencies could lead to companies leaving, capital flight, currency devaluation, inflation, and import difficulties. Yarom Arav, former Director General of the Ministry of Finance, expressed concern that the mere announcement questions the financial system's stability, potentially harming the capital market and credit rating, and likened the pursuit of financial workarounds to aligning Israel with regimes like Iran.

The Israeli high-tech sector warned that companies would close and move abroad without free markets and international trade, criticizing the proposal as adapting to disaster instead of fighting for solutions. Professor Manuel Trachtenberg called crypto-economics a symptom of a deeper problem and Netanyahu's continued leadership a threat to the country's economic future. Professor Eran Yashiv noted that the statement could attract negative international press and financial market attention, signaling a readiness for extreme measures and risking deeper economic crisis and potentially harsher sanctions.