Netanyahu's Blockchain Sanctions Pitch Draws Central Bank Pushback

By Tom Whitfield

Ahead of Israel's Oct. 27 elections, Prime Minister Benjamin Netanyahu said on Friday that Israel is exploring blockchain technology and cryptocurrencies to circumvent potential banking sanctions. In an interview with Israel's Channel 10 economic network, Netanyahu said: “Blockchain is an alternative to sanctions.”

What does Netanyahu's proposal change?

Netanyahu described blockchain as a “national strategic tool,” according to the Friday interview. CryptoJungle, described as Israel's largest crypto media platform, characterized the comments as a government pivot from treating digital currency as an investment event to incorporating it into Israel's economic defense strategy.

The proposal therefore moves digital assets from an investment theme to a component of economic defense strategy. It also asks whether crypto can preserve economic activity under financial restrictions rather than simply facilitate transfers or investment.

Why have sanctions become an election issue?

Twelve Western countries have announced sanctions targeting goods from Israeli settlements in the West Bank. The measures respond to Jewish settler attacks on Palestinians and increased settlement construction approved by Netanyahu's right-wing government.

Economists and industry figures told The Times of Israel last month that the sanctions could extend into Israel proper. Netanyahu's proposal links that potential expansion to the election debate over how Israel manages its economic exposure to sanctions.

Who rejected the sanctions strategy?

Several candidates seeking to replace Netanyahu in the Oct. 27 election, along with the head of the Bank of Israel, quickly challenged his statement. Gadi Eisenkot, leader of the Yashar party, wrote in a Saturday-morning X post: “The BibiCoin vision is a threat to national security.” The wording riffs on Netanyahu's nickname, Bibi.

The Bank of Israel also issued a statement rejecting the proposition. It said cryptocurrencies “cannot be used as a route for bypassing sanctions,” directly contradicting Netanyahu's description of blockchain as an alternative.

Can blockchain bypass financial controls?

Nadav Eyal, a Yediot Ahronot columnist, wrote in an X post that “the crypto element deserves particular scrutiny.” He acknowledged that “digital currencies can indeed move value outside some traditional banking channels,” but said they do not provide credit lines to banks, replace international capital markets or persuade foreign companies to violate sanctions on doing business with Israel.

That leaves a gap between moving value and replacing the financial system. The institutional functions cited by Eyal were bank credit, international market access and compliance decisions by foreign companies, all of which remain outside a blockchain transaction.

Ben Samocha, founder of CryptoJungle, told Cointelegraph on Sunday that “Crypto & blockchain-based solutions are not the tool for bypassing sanctions.” He added: “As demonstrated by the US Treasury against Iran, blockchain investigation allows tracking illicit funds, blocking their fiat gateway, and even freezing them.” Samocha said Israel's economy was not fit to bypass sanctions through crypto.

His enforcement argument treats blockchain as a tracking system rather than an escape route. Tracing, fiat-gateway blocking and asset freezing were presented as operational controls.

What did the reaction in Tel Aviv show?

At a Saturday evening anti-government rally in Tel Aviv, Aryeh Cohen said: “An economy that runs on the dark web makes us no better than our enemies.” Cohen held a sign that read “enough Bibi's B.S.” in English.

Another rally attendee, identified only as Pnina, told Cointelegraph: “what's next, the Bank of Israel living 'neath the law.” These objections echoed Eisenkot's national-security warning and the Bank of Israel's institutional rejection of crypto as a sanctions workaround.

With the election scheduled for Oct. 27, the next deadline is political support for Netanyahu's proposal. An operational framework would still need to answer the Bank of Israel's enforcement objection and the limits identified by Eyal and Samocha.