Israel's Central Bank Warns Netanyahu Crypto Won't Evade Sanctions

Prime Minister Benjamin Netanyahu's suggestion that Israel could use cryptocurrencies and blockchain technology to counter potential financial sanctions has drawn sharp criticism from economic and academic circles. Israel's central bank, Bank of Israel, issued a strong statement asserting that cryptocurrencies are not a viable means to circumvent sanctions. In response to the backlash, Netanyahu stated in an interview with Channel 14 that he views cryptocurrencies as one possible tool among others for addressing economic challenges, and is not certain Israel will actually use them. He acknowledged the objections, stating he takes them into account and has always received advice, much of it from Bank of Israel. However, he also defended his economic record, citing unprecedented prosperity, breaking monopolies, reducing public sector waste, fostering private sector competition, and lowering prices and taxes, asserting he does what he deems appropriate for Israel's continued economic prosperity.

Bank of Israel emphasized that preserving economic relations with key trading partners and preventing sanctions are paramount. The bank stated that cryptocurrencies cannot serve as a pathway to bypass sanctions and that focusing on preventing sanctions and mitigating their negative impact is crucial, a responsibility that falls under the political level. The report also noted that officials in economic ministries were unaware of a plan Netanyahu had previously mentioned for a digital currency initiative, and senior Prime Minister's office staff were also uninformed about a team preparing such a plan.

Yair Avidan, a former Supervisor of Banks, commented that while blockchain technology might offer resilience in crises, it does not provide a solution for bypassing sanctions. He clarified that moving transactions to a blockchain or using digital tokens does not legalize prohibited transactions or negate legal obligations. Avidan explained that blockchain networks are not independent of the global financial system, requiring cooperation from banks, payment providers, and trading partners, along with liquidity and integration with other systems. He argued that during sanctions, these entities would likely not participate in circumventing them. Avidan concluded that addressing sanctions requires responsible policy, maintaining trust, commercial relations, and economic preparedness, rather than relying on blockchain as a cure.