Netanyahu's plan to use cryptocurrency to bypass sanctions draws rebuke

Israeli Prime Minister Benjamin Netanyahu has proposed exploring the use of cryptocurrency to circumvent potential international banking sanctions, as a growing number of countries debate punitive measures against Tel Aviv.

Netanyahu floated the idea in an interview with Channel 10's economic broadcaster that aired on Friday, days before Israel's parliamentary election on 27 October. "We need to prepare ways to evade banking sanctions through an alternative economic system," he said, adding: "You know what that means, the currencies that can bypass them. I'm working on that, too." Asked directly whether he meant cryptocurrency, he replied: "Very correct."

The Bank of Israel issued a pointed response on Saturday, warning that digital currencies are no substitute for the country's economic relationships. "Cryptocurrencies cannot serve as a means of circumventing sanctions on Israel," the central bank said, arguing that "the right course for Israel's economy is to preserve economic relations with our main trading partners and focus on preventing sanctions and their negative impact on the economy." It said preventing sanctions was the responsibility of the political leadership and urged the government to act to protect Israel's economic ties.

In a follow-up interview on Saturday, Netanyahu described cryptocurrency as one of several options under consideration and said he would weigh the central bank's objections. "I hear the objections and I take them into account," he said. "I thank the Bank of Israel for their advice. I listen, but I do what I think is right."

The proposal has drawn criticism from opposition politicians, former bankers and economists, who warn that attempting to dodge international financial sanctions could damage investor confidence. More than 100 Israeli economists, business leaders and former senior officials, among them two Nobel Prize winners, signed a letter warning that broad international banking sanctions would cause "tremendous and irreversible damages" to the economy. The letter said Israel's banking sector, exporters, investors and high-tech industry would all suffer severely under financial isolation.

The controversy comes as Israel faces mounting criticism over settlement expansion and settler violence in the occupied West Bank. In September, the UK and 11 other countries imposed sanctions targeting trade in goods from Israeli settlements, with London saying it would ban imports from settlements alongside targeted measures against individuals and companies that support, enable or benefit from them. France, Canada and Spain have also said they will introduce, or are weighing, sanctions on settlement goods.

Opposition leader Yair Lapid accused Netanyahu of preparing for economic isolation instead of working to avert it. The sanctions evasion plan, Lapid wrote on X, "belongs to countries like Iran, Russia, and Venezuela," nations whose banks are cut off from the world, whose companies cannot accept payments and whose young people are fleeing.

Avigdor Liberman, a former finance minister who leads the opposition Yisrael Beiteinu party, said Netanyahu was acknowledging the danger of isolation without explaining how he would prevent it. Instead of laying out a plan to stop sanctions, Liberman said, the prime minister is already talking about building a "sanctions-bypassing economy."

In the same interview, Netanyahu also warned that Israel should brace for an eventual end to US military assistance, saying Washington's political climate had shifted. Recalling the "tens of billions of dollars in American aid for the defence budget" he said he had secured twice, he told viewers: "You'd better prepare yourselves and get used to the idea that this will not continue. That is because America has changed, not because Israel has changed. It will end. It is only a matter of time."

Under the current Memorandum of Understanding, the United States provides Israel with $3.3bn a year in foreign military financing plus $500m for joint missile defence programmes, a total of $3.8bn annually that remains contingent on congressional funding. Washington has approved billions of dollars in additional military assistance since the Hamas-led attacks of 7 October 2023 and the subsequent genocide in Gaza, including a supplemental funding bill signed by President Joe Biden in April 2024 that added support for Israel's military and missile defence systems.