Prime Minister Benjamin Netanyahu said Israel should prepare for the possibility of international banking sanctions, with cryptocurrencies and blockchain technology floated as one way to keep the economy functioning if such measures were imposed. The Bank of Israel publicly rejected the idea, stating that cryptocurrencies “cannot be used as a route for bypassing sanctions.”

The clash unfolded three days before national elections, with opposition leaders and senior banking and capital markets figures joining the central bank in criticizing the proposal. According to the Financial Times, the Bank of Israel publicly rejected the prime minister's plan to use cryptocurrencies to circumvent potential international financial sanctions.

Netanyahu made his comments on Friday in an interview with Israel's Economy Channel. He said he had asked advisers to prepare a plan for coping with potential banking sanctions. “You need to prepare an economy that can circumvent them,” he said.

The remarks came after Britain and 11 other Western countries announced sanctions on goods from Israeli settlements in the West Bank, a development that framed the prime minister's calls for contingency planning. Those announced measures targeted settlement goods rather than banking access; Netanyahu's comments pointed to a different scenario — restrictions that could cut Israeli banks off from the cross-border payment channels Israeli businesses rely on to receive money from abroad.

Bank of Israel Rejects Netanyahu’s Proposal to Use Crypto to Evade Potential International Financial Sanctions

According to the Financial Times, the Bank of Israel publicly rejected Prime Minister Benjamin Netanyahu’s proposal to use cryptocurrencies to circumvent potential… pic.twitter.com/UrBtc3hlQ6

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Bank of Israel and Opposition Push Back

The Bank of Israel responded on Saturday, a day after the prime minister's interview, saying cryptocurrencies “cannot be used as a route for bypassing sanctions.” The central bank added that Israel should maintain its economic ties with its main trade partners, and that the task of preventing sanctions from being imposed in the first place belongs to the political leadership rather than the financial system.

Netanyahu later told Channel 14 that he had heard the resistance and would take it into account. “I listen, but I do what I think is best,” he said.

Opposition leaders were quick to criticize the idea. Gadi Eisenkot, leader of the Yashar party, accused Netanyahu of “dismantling the Israeli economy” and asked how an Israeli tech firm could receive overseas payments or investment under such a plan. Naftali Bennett of B'Yachad said he was “horrified” by the proposal.

Avigdor Liberman of Yisrael Beytenu pushed back on technical grounds, saying blockchain transactions can be traced. That objection rests on a technical feature of major public blockchains: transactions are recorded on transparent, permanent ledgers that outside observers, including regulators, can analyze. Liberman also said Netanyahu had blocked efforts to regulate the crypto industry in Israel.

Concern Grows in Israeli Markets

Senior figures in Israel's banking and capital markets sectors told the Israeli daily Israel Hayom they are worried about the potential consequences, pointing to possible disruption to international money transfers and pressure on bank shares when markets open.

One senior bank executive said he had seen no indication of any such sanctions threat, adding that he hoped the prime minister's remarks were only election talk.

Officials said even partial limits on transfers could delay payments, with businesses potentially facing extra checks and paperwork. International transfers of the kind officials described typically depend on relationships between domestic banks and foreign correspondent banks, which is why even narrow restrictions can ripple through routine payments.

Investment managers said they are bracing for a possible sell-off when the Tel Aviv Stock Exchange, Israel's main securities market, reopens on Monday. They said even the threat of sanctions could lead investors to review their holdings. One capital markets figure said a 20% drop is possible if the situation is not calmed, though Israel Hayom noted this was an extreme scenario from a single source, not a consensus forecast.

Sources cited by the newspaper said the Bank of Israel and the banks are expected to take steps to reassure markets if pressure builds. Foreign exchange trading also resumes Monday.

The bank executive said the Bank of Israel is already addressing the issue, and that a clearer picture of the market impact should emerge once trading resumes.