Just days before Israel's general election last Friday, Prime Minister Netanyahu proposed using cryptocurrency and blockchain technology to circumvent international sanctions that are of growing concern abroad, helping Israel withstand economic isolation.
The Bank of Israel issued a rare public rebuttal, stating that cryptocurrency "cannot serve as a channel for bypassing sanctions," but this did not shake Netanyahu's position. He said he would take the central bank's stance into consideration, but would still pursue what he deems the most beneficial approach.
The central bank was not the only voice raising alarms. Netanyahu's contingency plan also drew sharp criticism from over a hundred senior economists, business executives, and former public officials. They accused the current government of knowingly pushing Israel toward international economic boycott and isolation, which could cause "irreversible damage" and weaken Israel's ability to fund its defense spending. The economists' forum includes former senior central bank officials and Nobel laureates.
The forum warned that the mere fact of Netanyahu acknowledging Israel needs to prepare for potential banking sanctions is already causing harm. His suggestion that Israel could use such means to evade potential Western restrictions would inevitably deter overseas investment that the country desperately needs. In such an environment, Israel's isolation would only deepen, and the chain effects could even bring the economy to a standstill and harm the public's interests.
They predicted: "Israel's banking system, local businesses, exporters, investors, and especially the high-tech sector that serves as the engine of economic growth, would all lose their operational foundations. Foreign capital would completely withdraw, unemployment would soar, and Israel's global economic standing would collapse."
Clearly, Netanyahu's proposal to use cryptocurrency to evade potential Western sanctions raises a thorny question whose implications far exceed the technical feasibility of the plan itself. The remarks amount to an acknowledgment of a bleak prospect: Israel may face broader and more severe economic restrictions in the future, and could even be shut out of the global financial system, requiring the nation to prepare for the consequences.
Netanyahu has not put forward a credible plan to prevent economic isolation; rather, he appears to be signaling that if he wins re-election on October 27, his government will not adjust its policies to avoid sanctions, but will instead seek ways to circumvent them.
Netanyahu made these remarks amid mounting pressure from Western countries over Israel's policies on settlements in the West Bank and its inadequate response to escalating settler violence. In response to a wave of settler attacks on Palestinians and the approval of large-scale new settlement construction by Netanyahu's far-right government, the United Kingdom announced last month a ban on trade with Israeli settlements, and 12 other Western countries indicated plans to introduce or support similar restrictive measures.
Gali Ingber, head of financial research at the academic research center of a management college, told The Times of Israel: "What is concerning is that Netanyahu treats sanctions as a scenario we must deal with, which means the current government does not intend to make any changes. That is, if countries choose to sanction Israel, Netanyahu's government will only figure out how to deal with the sanctions, rather than thinking about how to curb settler violence and use diplomatic means to avoid being economically isolated by its most important trading partners."
Ingber said: "Israel is a modern, developed economy and cannot survive and grow in isolation from the outside world."
The Bank of Israel also expressed concern. As an advisory body to the government, the central bank called on policymakers to make the right choices for Israel's economy, maintain solid economic ties with major trading partners, and focus on preventing sanctions. The central bank stated: "This matter falls within the responsibility of the political level, and the political establishment should take the initiative to advance the relevant work."
Ingber explained: "Bypassing sanctions through digital currency won't work. Blockchain ledgers are open and transparent; every transfer leaves a record that can be traced to its source. Once Israel is sanctioned, almost no company or bank in Europe, America, or elsewhere would be willing to openly trade with Israel or participate in such an alternative payment scheme."
She further explained: if financial institutions in various countries are required to enforce sanctions against Israel, even using digital currency and distributed ledgers cannot replace the global network of banks, suppliers, customers, and investors. Israel's economy is highly dependent on international trade, foreign investment, and global financial links, and this parallel alternative system cannot substitute for them. "Investors in Europe and elsewhere would proactively distance themselves from Israel; they don't want to be deemed as doing business with a sanctioned country and risk facing fines," Ingber said. "If Israel is sanctioned and cut off from the global economy, the high-tech industry, as the core growth pillar, will be unsustainable."
Over the past three years and during the conflict with Hamas, Israel's economy has been able to withstand pressure largely thanks to the resilience of the tech industry. The tech sector contributes about 20% of Israel's GDP, accounts for half of total exports, and generates substantial tax revenue. Israel's tech innovation industry is highly dependent on foreign capital, with about 80% of venture funding for local startups coming from overseas funds.
Ingber cautioned that the damage may not wait until sanctions are actually imposed; merely Netanyahu's statements could influence investment decisions. Investors assess a country not only by its current economic performance but also by anticipating future risks. Multinational companies will hesitate about expanding R&D centers in Israel, establishing subsidiaries, or committing to long-term projects; entrepreneurs will be more inclined to base their companies in other countries. "Tech companies and entrepreneurs will relocate overseas, registering companies in the United States or Europe. Unemployment will rise, and the substantial tax revenue from the tech industry will disappear, further weakening the government's ability to repay debt and provide public services," Ingber said.
"We have already seen doctors and engineers leaving, seeking good incomes abroad to support their families."
"If this path continues, Israel's economy will no longer be able to maintain its current state. It will regress forty or fifty years, back to an era without high technology and with a declining economy."
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