A few days ago, Prime Minister Netanyahu announced a new initiative to withdraw 200 shekel bills from circulation, marking the beginning of a plan to eventually eliminate cash entirely within a few years.
The stated reason? To combat financial crimes and black money within Arab society.
As anticipated, this decision—similar to India’s actions in 2016—will likely lead to further destabilization of Israel’s economy as well as the physical and mental wellbeing of its citizens. The repercussions of this economic upheaval will be felt in Gaza, where the Israeli shekel is the primary currency, and where the population heavily depends on cash.
Let’s break down the details.
Elimination of 200 shekel banknotes
The total value of Israeli 200 shekel bills exceeds 100 billion shekels, accounting for nearly 80% of the currency held by the public. Recent attempts to cast cash holders in a negative light included a report claiming that “most 200 shekel bills are not used for transactions, but rather for accumulating black capital.” A group of so-called experts—nine businessmen and former public officials—who spearheaded the idea, assert that eliminating these bills will recover over 20 billion shekels ($5.3 billion) by next year and 110 billion shekels ($29 billion) within the next five years, thereby returning it to the state and exposing tax evaders.
Two weeks ago, the first mainstream media piece on this initiative emerged, aimed at normalizing and preparing the public for this extreme measure.
The proposed policy document outlines several strategies to tackle black capital:
- Withdrawing 200 shekel bills from circulation while broadening the requirements for reporting cash holdings to authorities. This is part of a comprehensive plan to ultimately abolish cash in three phases: 1- limit cash transactions to 3,000 shekels ($800) within 2-3 years, 2- reduce the transaction limit to 2,000 shekels ($530), and 3- eliminate cash usage completely, promoting digital payment alternatives.
- Utilizing AI tools for monitoring and enforcing tax compliance,
- Creating a joint enforcement initiative that involves various key agencies, including the Tax Authority, the Anti-Money Laundering Authority, police, the prosecutor’s office, and the Counter-Terrorism Economic Warfare Headquarters.
- Prohibiting possession of cash substitutes like gold, silver, medals, and large-scale coins.
- Enhancing regulation of non-banking financial institutions, including currency exchange services managing significant volumes of illicit funds.
- Confiscating digital currencies associated with terrorist activities from sanctioned entities – “Technologies exist for the real-time identification of such transactions, and Israel must adopt them immediately. This will disrupt funding flows for terrorism and crime, identify terrorist operatives, and seize hundreds of millions, potentially billions of dollars for the state.” (This part comes from a leaked draft of the plan dated March 2024, yet hasn’t appeared in mainstream media – E.F)
Interestingly, just two weeks after the initial “proposal” regarding this new policy, Prime Minister Netanyahu declared he is now pushing this reform forward urgently, aimed at fighting black capital, particularly among the Arab population, and convened a special committee to discuss the new policy.
Last year, Israel introduced a new regulation requiring pre-approval from the Tax Authority for any B2B transaction exceeding 25K shekels. The current proposal seeks to lower this threshold for required pre-approval from the Tax Authority from 25K shekels ($6,750) to 5K shekels ($1,350), a highly contentious move.
The largest mainstream media outlet in Israel, Ynet, reminded its audience that “Similar actions have been taken in other countries. In certain areas of China, cash use has been entirely banned.” Israeli authorities frequently cite “other countries are already doing this” as justification for their own actions. This same reasoning recurs when discussing the Digital Shekel. Recently, I listened to a podcast featuring Israel’s Central Bank governor praising how advanced the ECB is with the Digital Euro, for instance.
• Israel’s is promoting an initiative to abolish the 200 shekel bank notes as a first step to narrow use of & abolishing cash. Same as in India in 2016.
• Physical gold & silver may be forbidden to hold. 
• Gaza’s population suffering from financial oppression via lower… pic.twitter.com/XUbCUKDgFE
— Efrat Fenigson (@efenigson) September 22, 2024
My video about the new 200 shekel bills initiative went viral, racking up 70K views; you can share it here.
India’s Removal of 500 & 1000 Rupee notes in 2016
In November 2016, the Indian government made a comparable decision to the one currently under consideration in Israel, withdrawing 500 and 1000 Rupee notes from circulation. Following this decision, hundreds of individuals lost their lives, many experienced hardships, and the country’s GDP suffered a significant blow.
From a 2016 article on Vox:
“Tens of thousands of people took to the streets across various cities in India to protest an economic policy you’re unlikely to have heard of before: demonetization.
Three weeks prior, Indian Prime Minister Narendra Modi shocked the nation with an announcement to ban 500- and 1,000-rupee notes—valued at around $7 and $15, respectively—to tackle corruption and terrorism.
He believed that compelling citizens to exchange the largest currency notes for new banknotes would assist the government in cracking down on “black money”—untaxed cash holdings that should be taxed by law. He also claimed it would target domestic terrorist funding by capturing counterfeit money and rendering the legitimate cash hidden in shadows worthless.
Banning widely-used banknotes greatly impacts any economy, but in India, this policy was transformative. Modi’s abrupt ban meant that 86 percent of the cash circulating in India was suddenly rendered illegal, allowing businesses to refuse those bills as payment. India’s economy predominantly operates on cash: estimates suggest that between90 and98 percent of all transactions in India, by volume, involve cash.
Unsurprisingly, Modi’s demonetization effort created chaos throughout the nation. Citizens wanted new banknotes, but the available supply fell drastically short of meeting demand. This led to difficulties for individuals waiting in long lines outside ATMs and banks that frequently ran out of cash. For those depending on daily cash incomes, this situation made it challenging to access food.”
In an insightful lecture by Andreas Antonopoulos, a well-known Bitcoin developer and speaker from 2016, he examines the currency struggles within countries. He elaborates on the cash crisis in India, alongside issues faced by nations where citizens suffer due to dysfunctional currencies (Venezuela, Argentina, Ukraine, Turkey, and others).
All trials conducted in one nation serve as testing grounds for potential future implementations elsewhere (like the 2012 bank deposit confiscations in Cyprus or various measures taken in the U.S. to prevent banking collapses). As debt increases, economic conditions worsen, and inflation rises, these experiments will likely accelerate. We can anticipate heightened taxes, further cash restrictions, increased confiscations, and rising prices amid inflation. Ultimately, this deteriorating environment may create the necessary justification for introducing a new digital control system known as the CBDC, especially if another “crisis” or “emergency” occurs beforehand.
Further cash limitations in Israel
Israel’s government has been tightening cash usage policies in recent years. Currently, there are no official restrictions on the amount of cash that can be stored at home, but the government has consistently indicated disfavor toward this practice, advocating for as many transactions as possible to occur through non-cash payment methods. Concurrently, the government is working on legislation that would prohibit holding more than 200,000 shekels in cash. Additionally, possessing cash amounts of 50,000 shekels or more will necessitate explanations to authorities regarding the source and intended purpose of the money.
In August 2022, Israel declared that cash payments exceeding 6,000 shekels would be banned. This reform is said to target organized crime, money laundering, and tax evasion, according to a statement from Israel’s Tax Authority.
The Jerusalem Post reported back in 2022:
Under the new regulation, any business payment exceeding 6,000 NIS ($1,700) must use alternative methods like digital transfers or debit cards. Cash transactions between private individuals not registered as business owners will be limited to 15,000 NIS ($4,360). This represents another step in Israel’s ongoing battle against cash usage. Previously, cash transactions up to 11,000 NIS ($3,200) were permitted in business dealings.
“Our aim is to decrease cash reliance in the public,” stated Adv. Tamar Bracha, responsible for enforcing the law on behalf of Israel’s Tax Authority, in an interview with The Media Line. “We want to limit cash circulation in the market, especially since crime organizations predominantly depend on cash. By restricting its use, engaging in criminal activities becomes significantly more challenging.”
“The goal is to reduce cash fluidity in the market, mainly because crime organizations tend to rely on cash” — Adv. Tamar Bracha, Israel’s Tax Authority, 2022
The cash crisis in Gaza
The cash shortage in Gaza has exacerbated the already critical conditions, making it even more difficult for residents to purchase essential food and supplies.
In Gaza, shortages extend beyond food, water, and electricity. Nearly a year into the conflict, a severe cash deficit exists. Banks have been damaged, and ongoing power outages have rendered ATMs nonfunctional. Reports from the area reveal how this cash deficit worsens daily survival struggles while IDF raids on Hamas positions have uncovered millions of shekels and substantial amounts of U.S. dollars stored there.
Cleaning with soap and water and returning to customers: Gaza’s worn banknote dilemma
According to a report by Ynet:
“An ongoing shortage of fresh cash and the closure of numerous bank branches due to the war have compelled residents in Gaza to reuse worn banknotes for almost a year. “With so much use, these notes are often tattered and decayed, and I refuse to accept them,” lamented a local vendor. In the meantime, a new trade has emerged in the strip: cleaning and refurbishing worn banknotes.
The shutdown of numerous banks in Gaza since the conflict started has resulted in a severe cash scarcity, forcing residents to continue using old, damaged bills. A new service known as “note cleaning” has come up, where worn bills are cleaned and restored for reuse, costing between 2 and 5 shekels per note.
Merchants, particularly those in northern Gaza, emphasize that the only real solution to this crisis is for the closed banks to reopen and for fresh cash to be injected into the market. Otherwise, the risk of counterfeit currency spreading increases.
Additionally, cash withdrawals from ATMs in Gaza incur significant fees ranging from 10% to 20%. Prior to the conflict, approximately 20 currency exchange offices operated in Gaza City alone, either run by Hamas or taxed by the organization. These offices traded in various currencies and facilitated conversions, alongside several informal money changers working in market corners.”
What’s next?
The move towards a cashless society in Israel represents another measure in tightening control and infringing on property rights, impacting both citizens and neighboring populations. This transition to a cashless system is merely one worrying trend amidst other alarming developments in Israel, such as encroaching on citizens’ pensions and advancing the Digital Shekel.
A new economic reality looms ahead. In such times, understanding Bitcoin becomes essential to safeguard against governmental overreach through the only truly decentralized and secure cryptocurrency controlled by no one and fully permissionless, free from government oversight.
This is a guest post by Efrat Fenigson. The opinions expressed are her own and do not necessarily represent those of BTC Inc or Bitcoin Magazine.
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