Netanyahu Eyes Crypto to Counter Sanctions, but Central Bank Pushes Back

The Bank of Israel has just publicly rejected Benyamin Netanyahu’s crypto project. On October 24, the institution stated that cryptocurrencies would not allow the country to circumvent possible international financial sanctions. The Prime Minister had nevertheless requested the preparation of a system based on blockchain. More than 100 economists also denounce this proposal, which comes just days before the Israeli legislative elections on October 27.

The Bank of Israel rejects Netanyahu’s crypto plan

The disagreement is now public. On Friday, October 23, Netanyahu explained that Israel must prepare an economy capable of functioning despite possible international banking sanctions. He had notably asked his advisers to develop a plan based on blockchain.

The Bank of Israel responded the very next day. In a particularly direct statement, it claims that cryptocurrencies do not constitute a means to circumvent sanctions. The institution rather recommends that the government preserve economic relations with its main trading partners.

The clarification comes after new restrictions announced by several Western countries against products from Israeli settlements in the West Bank. However, these targeted measures do not correspond to the general banking sanctions feared by Netanyahu.

The Prime Minister does not intend to abandon his idea. Interviewed on Saturday evening, he thanked the central bank for its advice while stating that he would make the decisions he deems necessary. He specified that crypto was only one option among several and that it would not necessarily be used.

For now, no blockchain network, no crypto, and no official timeline have been announced. According to Ynet, several Israeli economic officials even claim to have no knowledge of a team working concretely on this project.

Crypto can circumvent some blockages, not all sanctions

The central bank’s position deserves some clarification. A Bitcoin or Ethereum transaction can be executed without going directly through a traditional bank. Two companies can also use stablecoins for some international settlements.

However, these operations remain traceable on public blockchains. Exchanges, partner banks, and stablecoin issuers also apply compliance rules.

The Iranian example illustrates both sides of the problem. In September, a U.S. Senate investigation revealed that 84% of 846 crypto wallets sanctioned or targeted by seizures for their links to Iran had used exclusively, or almost exclusively, USDT.

The report describes a major payment network used despite American financial restrictions. However, Tether states it helped freeze nearly $550 million of USDT related to Iran in 2026.

Crypto transfers can therefore continue despite certain banking restrictions. They do not automatically shield their users from sanctions, fund freezes, or refusals by their trading partners.

For Israel, another problem would persist: a foreign company can always refuse a contract, investment, or delivery, even when the proposed payment passes through blockchain. Changing currency is not enough to maintain a commercial relationship.

More than 100 economists warn about the consequences

The reaction of the Bank of Israel is not isolated. On Sunday, October 25, more than 100 economists and economic officials signed a letter expressing their concerns. Among them are former central bank officials, former governor Jacob Frenkel, and several Nobel laureates.

They fear notably a decline in foreign investment, a rise in unemployment, and difficulties for Israeli companies dependent on international markets. Gadi Eisenkot, Netanyahu’s main opponent in the elections, also challenged the proposal. He believes that an economy based on parallel financial circuits would risk weakening the country’s trade relations.

The tech sector would be particularly exposed, according to these critics. Israeli companies need foreign investors, banking partners, and international clients. A crypto infrastructure would not necessarily replace these relationships.

The debate comes even as Israeli banks already develop certain services linked to digital assets. In August, Bank Leumi announced a partnership with Galaxy Digital to offer Bitcoin, Ethereum, and Solana to its clients starting in 2027. Crypto is therefore also progressing in the traditional Israeli financial system. Netanyahu now wants to explore its use as a backup solution against possible sanctions. The Bank of Israel considers this approach insufficient to protect the national economy. On the eve of the October 27 elections, the disagreement remains whole. No operational plan has yet been presented.