Bank of Israel Rejects Netanyahu's Plan to Use Digital Assets to Evade Sanctions

Bank of Israel Rebuttal

Israel's central bank has publicly rejected Prime Minister Benjamin Netanyahu's proposal to prepare digital assets as a fallback against international financial sanctions, stating on October 24 that crypto cannot serve as a means to bypass sanctions against Israel. The Bank of Israel argued the correct direction for the economy is to maintain economic relations with major trading partners and to prevent sanctions and their negative effects from materializing, adding that responsibility for preventing sanctions rests with the political leadership. The statement came one day after Netanyahu, in an interview with Israel's Channel 10 broadcast on October 23, said the country must prepare an alternative economic mechanism that could operate if banks are sanctioned, naming blockchain among the candidate tools and disclosing that he had already asked for a plan to be drawn up. He did not present specifics: which digital assets or networks would be used, who would draft the plan, or when it could take effect. In a separate television interview on October 24, the prime minister said digital assets are one of several instruments under consideration, thanked the central bank for its advice, and said he weighs opposing views but ultimately makes the decisions he believes are right. He has not withdrawn the idea, and local media reported that whether the tools would actually be deployed remains undecided. The public contradiction is rare in tone: a central bank openly pushing back on a sitting prime minister's economic policy within 24 hours, as concerns over Israel's diplomatic isolation spill into economic policy. Netanyahu also used the interviews to warn that United States military aid, set at $3.8 billion a year under a memorandum of understanding running through 2028, may not continue indefinitely, and that Israel should be able to fund its own defense.

Settlement Sanctions and Correspondent Banking

The sanctions scenario behind the plan centers on the West Bank settlements. In September, twelve countries including the United Kingdom, Canada, France and Spain announced measures to restrict imports of goods produced in the settlements and to constrain related trade, in response to settlement expansion and violence against Palestinian residents. The United Kingdom separately outlined sanctions against individuals and companies providing financing, construction and real estate services to settlement growth. Measures announced so far target settlement-linked trade and activity; they do not amount to sanctions on Israel's banking system as a whole. What Netanyahu flagged is the risk that measures later widen and sever transaction relationships between Israeli banks and foreign financial institutions. Former Bank of Israel Supervisor of Banks Yair Avidan has warned that if foreign banks stopped providing correspondent services, the channels through which Israel pays for imports and collects export proceeds, the country's ability to conduct international economic activity could be effectively cut off. Digital assets can reduce intermediaries in some transactions or serve as an alternative payment channel, but the central bank's position is that they cannot substitute for the financial system's full range of functions: trade settlement, currency exchange, corporate cash flow and interbank transfers. Blockchain records are often public, making flows traceable, and operators such as exchanges and custodians are themselves bound by sanctions and anti-money-laundering rules, so using digital assets does not automatically remove sanctions risk. Tether, the issuer of the dollar-pegged stablecoin USDT, for example assists authorities in freezing USDT tied to sanctioned persons and criminal organizations, locking balances held at a given crypto wallet address. Opposition figures attacked the plan from a different angle: opposition leader Yair Lapid wrote on X that a sanctions-evasion economy is the path of countries isolated from global finance such as Iran, Russia and Venezuela, while former Finance Minister Avigdor Liberman accused Netanyahu of acknowledging isolation risks yet discussing workarounds instead of prevention.

Access, Not Assets

Our reading: the argument is about access to payment infrastructure, not the underlying technology. The speed of the rebuttal, issued the day after the broadcast, is unusual for the Bank of Israel, and it frames the choice as preserving correspondent banking ties versus testing unproven rails. Digital assets sit on top of regulated off-ramps: exchanges and custodians enforce sanctions lists, and a public ledger makes transfers traceable, which is precisely why Tether can freeze USDT on request. For an economy of Israel's size, that covers a fraction of transaction volume while trade settlement and interbank flows remain bank-dependent. No timetable for the plan Netanyahu ordered has been published.