Israel’s Central Bank Rejects Netanyahu’s Crypto Sanctions Scheme

Israel’s central bank has publicly rejected Benjamin Netanyahu’s proposal to build a cryptocurrency “bypass economy” against international sanctions, turning the prime minister’s election-week boast into a warning about the price of diplomatic isolation.

Netanyahu floated the plan during a Channel 10 interview on Friday. “There could be sanctions, and sanctions on banks so you need to set up a bypass economy,” he said. Asked whether he meant cryptocurrency, he replied, “Very true, very true,” and also invoked blockchain technology.

The Bank of Israel answered with an unusually direct rebuke. Cryptocurrencies cannot provide a route around sanctions, it said, and the government should preserve ties with Israel’s main trading partners instead of designing workarounds for their collapse.

“The right course for Israel’s economy is to preserve our economic relations with our main trading partners, and to focus on preventing sanctions and their negative impact on the economy,” the bank said.

The Bank of Israel building in Jerusalem. Photo: Ori Farkash/Wikimedia Commons, CC BY-SA 4.0.

That is not a technical disagreement over which token to buy. It is a confrontation over cause and effect. Netanyahu presented sanctions as a financial obstacle that clever technology could neutralize. The central bank treated them as the foreseeable result of political choices that threaten trade, banking and investment at the same time.

More than 100 economists deepened the revolt on Sunday. The signatories included former Bank of Israel officials, former governor Jacob Frenkel and several Nobel laureates. Their letter warned that Netanyahu’s course could produce higher unemployment, falling foreign investment and the collapse of Israel’s standing in the world economy.

The economists pointed to South Africa, Iran and Russia as examples of the damage sanctions can inflict. They warned that Israeli living standards could fall sharply while the state’s capacity to finance security weakened. Their message was blunt: crypto does not replace markets, investment or political legitimacy.

Netanyahu’s proposal arrives as Israel faces expanding pressure over its occupation and settlement policy. Britain, France and Canada said last month that they would block imports from Israeli settlements in the occupied West Bank. Those measures target a system of dispossession that international law does not recognize as sovereign Israeli territory.

A digital asset can move value between wallets. It cannot guarantee access to correspondent banks, insure cargo, restore trade credit, prevent capital flight or compel foreign firms to keep investing. Nor can blockchain code force a government to accept goods, contracts or financial exposure that it has chosen to prohibit.

That distinction explains the alarm. Netanyahu is not proposing an alternative productive strategy built around wages, public investment or diversified trade. He is offering a payments workaround while leaving the political machinery of isolation intact. Workers and households would absorb the resulting inflation, shortages, job losses and austerity long before any well-connected holder of digital assets did.

The plan also reverses the responsibility for the crisis. Sanctions do not descend from the sky. They emerge from decisions by states and institutions responding—however selectively and inconsistently—to war, occupation and violations of international law. A “bypass economy” would treat accountability as a software problem while refusing to confront the policies generating the pressure.

Netanyahu’s rivals seized on the opening. Gadi Eisenkot called the idea “madness” and mocked it as a “BibiCoin policy” that could push companies abroad. Opposition leader Yair Lapid said Netanyahu was promising Israelis bread lines like those associated with Russia and Iran. The attacks landed days before Tuesday’s election, which polls suggest could end without a governing majority for either bloc.

The larger warning goes beyond the ballot. Financial systems rest on political trust, enforceable contracts and access to productive economies. No cryptocurrency can manufacture those foundations after a government burns them down. Israel’s central bank has now said so in public. Netanyahu’s answer remains an attempt to escape the bill without changing the policy that incurred it.

Sources: Reuters; Financial Times. Photographs: India PMO/Wikimedia Commons (GODL-India); Ori Farkash/Wikimedia Commons (CC BY-SA 4.0).