Netanyahu's Crypto Plan to Evade Sanctions Sparks Widespread Criticism

Israeli Prime Minister Benjamin Netanyahu has proposed using cryptocurrencies and blockchain technology to circumvent potential international sanctions against Israeli banks. This initiative has drawn significant criticism from economic and banking sectors, with experts deeming it impractical and warning of severe repercussions for investments, foreign trade, and economic stability.

Netanyahu's remarks came in response to a UK-led initiative, involving 12 countries, to impose sanctions related to Jewish terrorism and settlement activities in the West Bank. The Bank of Israel issued a rare statement Saturday evening, asserting that "cryptocurrencies cannot provide a pathway to circumvent sanctions." While experts differ on the potential damage, they agree that while crypto may offer a technical means for fund transfers, it does not negate sanctions or replace the trust and banking relationships vital for economic continuity. The Bank of Israel emphasized that the government's primary responsibility is to prevent sanctions from being imposed.

In a subsequent response, Netanyahu stated that cryptocurrencies are "one of the means, not the only one, and it is not certain we will use them," adding that he is considering the objections but will proceed with decisions he deems necessary for economic prosperity. However, Israeli media reports, citing officials from economic ministries and even senior figures in the Prime Minister's office, indicated a lack of knowledge about any government team preparing such a plan, contradicting Netanyahu's claims.

The proposal was part of a broader discussion about Israel's need to prepare for shifts in its foreign relations, including the potential end of US aid and international economic sanctions that could isolate Israel from global transfer systems like SWIFT.

Concerns about sanctions have escalated due to European objections to increasing settler violence in the West Bank and Israel's advancement of new settlement projects, particularly the E1 plan near Ma'ale Adumim, which could geographically divide the northern West Bank from the south. In September, British Foreign Secretary Ed Miliband announced a potential ban on settlement products and measures against companies involved in construction, infrastructure, and real estate financing for settlements.

Experts like former Supervisor of Banks Yair Avidan explained that blockchain technology, while documenting transactions, does not eliminate legal restrictions. Even if funds are transferred via cryptocurrency, the need for accepting parties, liquidity providers, and financial institutions remains, and these entities are subject to sanctions laws. Tomer Sharony, director of a company tracking crypto transactions, noted that digital transactions are not necessarily anonymous and can be traced, similar to tracking illicit activities linked to Russia and Iran.

Former President of the Union of Industrialists, Ron Tomer, warned that the inability of companies to receive payments or pay for imports through conventional channels could lead to a collapse in exports and imports. He questioned which foreign companies would accept cryptocurrency transactions under sanctions, likening the scenario to potential trade isolation and a decline in investment and production. Former Director General of the Ministry of Finance, Yarom Arav, called the statements a "deafening warning signal," cautioning against a credit rating downgrade, capital flight, and a loss of skilled personnel, as well as damage to household income if confidence in the Israeli financial system falters.

Economists also voiced concerns. Yair Zimon, an economics professor at Tel Aviv University, highlighted the reliance of tech companies and investment funds on the international banking system and SWIFT, warning that volatile currencies could threaten the shekel's exchange rate, increase inflation, and disrupt the import of essential goods. A body representing hi-tech officials warned of company closures, halted investments, and relocation of activities abroad if normal trade and financial relations become impossible. Economist Manuel Trajtenberg saw Netanyahu's proposal as reflecting the risk of Israel moving towards isolation similar to countries under broad sanctions. Former Minister of Economy and Planning Shimon Sheetrit warned that the repercussions could extend to sectors not directly targeted by sanctions. Economist Eran Yashiv added that Netanyahu's statements themselves could alarm global markets and increase the likelihood of stricter sanctions.

Political criticism also emerged, with Gadi Eisenkot, head of the Yesh Atid party, questioning how Israeli tech companies could receive foreign investment or complete international acquisitions without conventional banking channels. He warned of potential job losses and reduced resources for health and education, suggesting Netanyahu was proposing adaptation to international isolation that his own policies had deepened. These criticisms come ahead of the Knesset elections, amid financial sector concerns about the impact of Netanyahu's statements on markets and bank stocks.