Bank of Israel Rejects Netanyahu's Crypto Sanctions-Evasion Plan

The Bank of Israel has publicly rejected Prime Minister Benjamin Netanyahu's proposal to use cryptocurrency and blockchain networks to bypass potential international sanctions, in a rare rebuke issued days before Tuesday's national election.

Cryptocurrencies "cannot serve as a means to circumvent sanctions imposed on Israel," the central bank said in a statement on Saturday, according to the Financial Times. "The right course of action for the Israeli economy is to preserve economic relations with our primary trading partners and to focus on preventing sanctions and their negative impact on the economy," it added.

Netanyahu floated the idea in a Channel 10 interview on Friday, saying Israel needed to prepare for possible banking sanctions and that he had asked for a plan to use crypto and blockchain networks to work around them. "Blockchain is one of the alternatives, certainly," he said. He did not say who was drafting the plan or which currency or network it would involve.

The prime minister later said he was taking the central bank's position into account but would do what he believed was best, The Times of Israel reported.

Why is Israel facing sanctions pressure?

The backdrop is mounting Western pressure over settlement policy. The UK, France and Canada have announced or pledged restrictions on trade with Israeli settlements in the West Bank, amid criticism of settlement expansion and rising settler violence.

On Sunday, more than 100 economists — including former Bank of Israel governor Jacob Frenkel and several Nobel laureates — signed a letter warning that the plan would bring higher unemployment and a collapse in foreign investment, Reuters reported. They called it "a puzzling solution, one accepted in criminal organizations, that will not help in the slightest."

The warning carries weight beyond politics. A collapse in foreign investment and rising unemployment would hit an economy that depends heavily on its primary trading partners — precisely the relationships the central bank says must be preserved.

Can crypto actually evade sanctions?

Economists questioned whether the plan would work at all. "It's not possible to circumvent sanctions with digital currencies as the blockchain system is publicly open and transparent, which means that every transfer is registered and can be traced to its origin," Gali Ingber, head of finance studies at the College of Management Academic Studies, told The Times of Israel.

Israel's own enforcement record proves the point. In July, Defense Minister Israel Katz signed sanctions orders on 37 crypto wallets holding more than 24 million shekels that Israel said belonged to Iran's Revolutionary Guards — targeting enabled by the same on-chain traceability that undermines any sanctions-evasion scheme built on public blockchains.

How is this playing politically?

Netanyahu's rivals seized on the comments ahead of Tuesday's vote. His main challenger, Gadi Eisenkot, called the idea "madness" and said the "BibiCoin policy" would drive companies abroad. Opposition leader Yair Lapid compared what Netanyahu described as a "bypass economy" to those of Iran, Russia and Venezuela.

Opinion polls point to a possible stalemate, with neither Netanyahu's coalition nor the opposition alliance on course for a governing majority. That leaves the crypto plan's future uncertain regardless of who forms the next government — though the Bank of Israel's institutional opposition, and the economists' warning, make clear it would face resistance at every step.

Tuesday's election will determine whether the plan advances at all.