Bibi and the Blockchain: When a Prime Minister Plans for Sanctions Evasion - Royal United Services Institute (RUSI)
Israeli Prime Minister Benjamin Netanyahu revealed plans to develop a cryptocurrency-based economic system to bypass potential sanctions, drawing criticism from economists and the Bank of Israel.
The comments came during an appearance on Israel's Channel 10 TV station in the days before the October 27 election, where Netanyahu acknowledged preparing for potential sanctions against Israel. In September, the UK and other Western governments announced their intention to apply sanctions and trade measures against certain elements of the Israeli economy in response to what UK Foreign Secretary Ed Miliband called the 'unlawful occupation of the Palestinian Territories,' specifically targeting 'those who finance or facilitate illegal settlements.'
Netanyahu explained: 'There could be sanctions, and sanctions on banks, so you need to set up a bypass economy' using currencies – including cryptocurrency – that can bypass sanctions, revealing that 'we are also working on that.'
The right course for Israel's economy is to preserve our economic relations with our main trading partners, and to focus on preventing sanctions and their negative impact on the economy.
Economists Condemn Plan
Netanyahu's proposal drew immediate criticism. An open letter signed by more than 100 economists accused him of 'knowingly leading the State of Israel toward boycott and international economic isolation,' dismissing his approach as 'a puzzling solution, one accepted in criminal organisations, that will not help in the slightest.'
His political opponent, Gadi Eisenkot, ridiculed the plan as 'madness,' calling it the 'BibiCoin policy' and predicting it would encourage Israeli companies to move abroad and threaten national security.
Sanctions Limitations
The proposal raises questions about whether cryptocurrency and blockchain technology have matured sufficiently to allow a country to pre-emptively protect itself against sanctions. While crypto can enable cross-border value transfers without traditional banking arrangements, it cannot replicate the broader economic benefits of access to the international financial system.
Russia's experience provides the principal case study of both the possibilities and limitations of alternative financial arrangements. Russia has effectively developed crypto-based payment systems for critical high-priority items, but running an entire economy – particularly one as developed as Israel's – through the 'cryptoverse' remains out of reach.
Three fundamental challenges exist: liquidity constraints, risk dependencies in stablecoins (as demonstrated by the October 29 Binance hack), and the inability to provide alternative markets for a country's exports without rewiring counterparty nations' payment systems.
Beyond Simple Payments
Sanctions don't simply switch off an economy's ability to function, but they force it to reshape and rewire, adding friction and cost. The core power of sanctions stems from their ability to restrict access to the complex network of global institutions, services, markets and commercial relationships that allow a developed economy to function.
This includes correspondent banking, trade finance, credit, insurance, investment, reserve management and engagement with trusted finance and trade counterparties – elements that cannot be replaced by cryptocurrency alone.
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