Benjamin Netanyahu’s interest in cryptocurrency reveals both the continuing power of financial sanctions and the current limits of technological attempts to circumvent them.
Thanks to the widely reported efforts of the Russian Federation, it is no longer fantasy that cryptocurrency and blockchain-based payment systems can help sanctioned actors move money, circumvent restrictions and sustain particular commercial relationships. But importantly, while crypto might facilitate payments, its use cannot replicate the broader economic benefits of access to the international financial system. Governments considering crypto as protection against financial isolation risk confusing the ability to transfer value with the ability to participate in the global economy.
While Russia’s experience provides the principal case study of both the possibilities and limitations of alternative financial arrangements, the recent Israeli debate, in the days before the 27 October election, provides a particularly revealing illustration of how these considerations are spreading. Appearing on Israel’s Channel 10 TV station, Netanyahu said he was preparing for the possibility that sanctions would be applied against Israel. This is not speculation. 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, in the words of UK Foreign Secretary Ed Miliband, the unlawful occupation of the Palestinian Territories, specifically against ‘those who finance or facilitate illegal settlements’.
In particular, he noted that ‘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 in conclusion that ‘we are also working on that’.
His comments were met with criticism by the Bank of Israel that suggested he would do better to focus on policies that did not require such measures, noting 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.’ An open letter signed by more than 100 economists also poured scorn on Netanyahu’s actions, saying that he is ‘knowingly leading the State of Israel toward boycott and international economic isolation, and all he has to offer the Israeli economy is a puzzling solution, one accepted in criminal organisations, that will not help in the slightest’.
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