Can blockchain bypass bank sanctions? Israel's debate

Israeli Prime Minister Benjamin Netanyahu said Israel should prepare for possible sanctions on its banks, and named blockchain as one way to work around them. The Bank of Israel pushed back within a day, Unchained reported. This article looks at how sanctions actually reach a country's banking system, and why a central bank thinks a blockchain cannot replace that plumbing.

What happened

Netanyahu spoke to Channel 10 on Friday, Oct. 23. His interviewer pointed to cautions voiced by Britain's foreign secretary and by other governments, and to the chance that sanctions might extend into the country's banks. He said the country needs an economy that can route around sanctions, banks included. Asked whether blockchain was the alternative, he called it one option and said he had already asked for a plan, according to Unchained's translation of the Hebrew exchange.

The reaction was fast. On Saturday the Bank of Israel said crypto "cannot be used as a route for bypassing sanctions", according to the Times of Israel. The central bank argued that keeping ties with Israel's main trading partners is the right course. On Sunday more than 100 economists, including former Bank of Israel governor Jacob Frenkel and several Nobel laureates, warned in a letter that the plan would cost jobs and foreign investment, Reuters reported. Netanyahu said on Channel 14 that he heard the objections but would do what he judged best. He has not published the plan or a timeline, and Israelis vote on Tuesday, Oct. 27.

How sanctions reach a country's banks

A sanction on banks rarely works by seizing anything inside the target country. It works by cutting the links that let those banks move money abroad. Most cross-border payments run through correspondent banking: a local bank holds an account at a foreign bank, which settles the payment in that foreign currency. Sanctions tell the foreign banks to stop.

• Correspondent accounts: a bank that is cut off can no longer pay or receive in the currencies its trading partners use.
• Screening: banks check every payment against sanctions lists, so a blocked name is stopped at many gates, not one.
• Messaging and clearing: payments between banks need shared message networks and settlement systems that are run by regulated institutions.
• Secondary pressure: foreign firms that keep dealing with a sanctioned party can face penalties at home, so many walk away even when not required to.

This is why a central bank cares. Its job includes keeping the payment system connected to the rest of the world. The Bank of Israel's message, in effect, is that the real protection is the relationship with trading partners, not a new rail.

Why a blockchain does not remove the chokepoints

A blockchain can move tokens between wallets without a correspondent bank. But an economy does not run on tokens alone. Importers must pay foreign suppliers who want usable money, and exporters must turn what they earn into wages and rent. That means converting tokens into bank money at some point, through exchanges and payment firms that are themselves supervised and screen their customers. Those on-ramps and off-ramps are where sanctions bite again.

The ledger itself is also a problem for anyone trying to hide. Yisrael Beytenu chairman Avigdor Liberman made exactly this point, noting on X that blockchain transactions can be traced. Israel's own record shows it: in July, Defense Minister Israel Katz put sanctions on 37 crypto wallets that Israel's counter terror financing bureau tied to Iran's Revolutionary Guards, JNS reported. A public ledger lets authorities flag addresses and then ask exchanges to freeze or refuse them. The same tool a state uses against others can be used against it.

What changes, and for whom

For now, nothing has changed in Israel's payment system. There is no published plan. What the episode shows is a public split between an elected leader and the central bank over how a country protects its access to global finance. The economists' letter adds a cost argument: if foreign investors and partner banks read a bypass plan as a sign of trouble, they may pull back before any sanction arrives.

For ordinary savers and businesses, the practical exposure is to their bank's foreign links, not to crypto. Opposition leaders framed the plan in stark terms: Yashar party leader Gadi Eisenkot called it a national security threat, and Yair Lapid and Naftali Bennett also criticised it.

Open questions

The reports leave several gaps. It is not known what the plan would contain, which tokens or networks it would use, or who would run it. It is unclear whether the Bank of Israel would have any role in it, given its stated opposition. Liberman also accused Netanyahu of holding back crypto regulation, which raises the question of what rules would apply to any new system. And the outcome of Tuesday's election may decide whether the idea goes any further.

Sources

• Unchained, 26 Oct 2026

How this post was made: an AI model drafted it from the sources listed above, and software checks ran before it went live without a human edit. Every figure has to match a listed source and no sentence is copied. It explains how the mechanism works; it is not investment advice.