Israeli Prime Minister Benjamin Netanyahu is facing criticism from the Bank of Israel, economists and political rivals after suggesting that cryptocurrency and blockchain technology could help protect the country if broader international sanctions were imposed. Netanyahu made the comments days before Israel’s election, saying the government was preparing for scenarios in which banks or other parts of the economy faced restrictions.
The debate comes as Britain, France and Canada have moved to restrict imports from Israeli settlements in the West Bank, increasing concern in Israel about possible future economic measures.
Netanyahu raised the idea of a “bypass economy”
In a television interview, Netanyahu said Israel needed to prepare for a scenario in which sanctions affected banks and other financial channels.
Asked whether cryptocurrency could be part of that strategy, he indicated that digital currencies and blockchain technology were among the tools under consideration.
The Bank of Israel pushed back
Israel’s central bank said cryptocurrencies were not a realistic way to circumvent broad economic sanctions.
It argued that the government should instead focus on preserving relationships with major trading partners and preventing sanctions from being imposed in the first place.
More than 100 economists signed a warning
A group of economists, including former central-bank officials, ex-governor Jacob Frenkel and several Nobel laureates, signed a letter criticizing Netanyahu’s approach.
They warned that sanctions could reduce foreign investment, raise unemployment and weaken Israel’s ability to finance national security.
Crypto cannot replace the banking system at scale
Cryptocurrencies can transfer value outside traditional payment networks, but a modern economy depends on far more than payments.
International trade requires credit, insurance, correspondent banking, letters of credit and access to major reserve currencies. Digital assets cannot easily replace those functions across an entire economy.
Sanctions can target crypto infrastructure too
Governments can impose restrictions on cryptocurrency exchanges, wallet providers and companies that convert digital assets into conventional money.
Blockchain transactions are also often traceable, making large-scale sanctions evasion difficult when major financial centres coordinate enforcement.
The proposal has become an election issue
Netanyahu’s main rival, Gadi Eisenkot, called the idea reckless and warned it could push companies and investment abroad.
Opposition leader Yair Lapid also attacked the proposal, portraying it as evidence that the government expected deeper economic isolation.
Israel’s trade relationships are critical
The United States and Europe are among Israel’s most important economic partners. Technology exports, investment and banking links depend heavily on access to those markets.
Even limited sanctions could have a larger effect if they made multinational companies more cautious about investing or operating in Israel.
The central bank is focused on confidence
Central banks place heavy emphasis on maintaining investor confidence because capital can move quickly when political risk rises.
Public discussion of ways to bypass sanctions can itself increase uncertainty if investors interpret it as evidence that restrictions are becoming more likely.
Other sanctioned economies offer cautionary examples
Countries facing broad financial restrictions have experimented with digital assets, barter arrangements and alternative payment systems.
Those methods can reduce pressure at the margins but have not eliminated the economic costs of losing access to major international financial networks.
The controversy extends beyond crypto
The deeper issue is whether Israel can avoid further economic isolation amid disputes over settlements and the wider regional conflict.
Netanyahu’s comments have turned that strategic question into a domestic political argument just before voters go to the polls.
Sources
- Bank of Israel statement
- Public letter signed by Israeli economists
- Reuters, Oct. 25, 2026
Digital assets also create exchange-rate and liquidity risks
If a government attempted to move a significant share of trade or reserves into cryptocurrencies, it would face price volatility and liquidity constraints that do not exist to the same degree in major sovereign currencies. Stablecoins can reduce some volatility, but they often depend on banking relationships and reserve assets that may themselves be subject to sanctions. That limits their usefulness as a full-scale substitute for conventional finance.
For Israeli businesses, the practical issue is predictability. Exporters and technology companies want stable access to payments, investment and foreign customers. A strategy built around sanctions avoidance could make planning harder if partners fear future legal or compliance risks. That concern explains why the central bank and economists are pushing the government to focus on preventing isolation rather than engineering workarounds after the fact.
