Israel’s transition to a cashless economy
The worth of the Israeli 200 shekel notes exceeds 100 billion shekels, representing almost 80% of the currency held by the public. In recent efforts to cast cash holders in a negative light, reports have claimed that “the majority of 200 shekel notes are not utilized for purchases but for hoarding illicit capital.”
Source: bitcoinmagazine.com
The economic and social ramifications of Israel’s demonetization endeavors will undoubtedly extend beyond its borders, with Gaza being one of the most severely impacted areas. Gaza, which heavily depends on the Israeli shekel as its principal currency, is already grappling with a significant cash deficit due to ongoing conflict and the destruction of its banking system. The withdrawal of 200 shekel notes from circulation will only worsen this crisis, further destabilizing an already vulnerable economy.
For a region already facing shortages of basic necessities such as food, water, and electricity, the withdrawal of high-denomination shekel notes will only compound the humanitarian disaster. The cash deficit has made securing essential goods increasingly challenging, and without any feasible alternative payment methods, the situation is poised to deteriorate further. The ripple impacts of Israel’s demonetization policy will predominantly affect Gaza’s most vulnerable groups, who depend on cash for their daily survival.
However, the effects of this policy reach beyond Gaza. The wider Middle East, already a hotbed of political and economic volatility, could witness additional unrest as a consequence of Israel’s shift towards a cashless environment. The demonetization of the 200 shekel note may disrupt cross-border trade, especially in areas where cash still prevails. This could heighten tensions both between Israel and its neighbors and within Israel itself, where the Arab demographic is particularly being singled out by these new measures.
Israel’s largest mainstream publication reminded its audience that “Similar measures have been executed in other nations. In specific regions of China, the use of cash has been entirely prohibited in certain cities.” Israel’s governing bodies frequently reference the “other countries are already doing this” rationale to validate their actions. This same claim re-emerges repeatedly when discussing the Digital Shekel.
The stated rationale? Combatting financial crimes and illicit funds within the Arab community. For those unfamiliar, 1.6 million individuals in Israel identify as Arab, constituting 17% of the national population.
- Phasing out the 200 shekel notes, while expanding the requirement to disclose cash holdings to authorities. This aligns with a more extensive strategy to eliminate cash entirely in three steps: 1) restrict cash transactions to 3,000 shekels (700 AUD) within 2-3 years, 2) reduce the transaction cap to 2,000 shekels (560 AUD), 3) fully eliminate cash payments while promoting digital payment options.
- Utilizing AI tools for tracking and enforcing compliance against tax evasion.
- Launching a joint enforcement initiative involving several key entities, such as the Tax Authority, Anti-Money Laundering Authority, police, prosecutor’s office, and the Counter-Terrorism Economic Warfare Headquarters.
- Prohibiting the ownership of cash alternatives like gold, silver, medals, and bulk coins.
- Strengthening regulations on non-bank financial entities, including currency exchange firms, which handle large amounts of illicit finances.
- Confiscating digital currencies connected to sanctioned entities’ terrorist activities. “Technologies exist that permit the real-time detection of such monetary transfers, and Israel must implement them immediately. This will help disrupt the flow of funds to terrorism and crime, identify terrorist operatives, and recover hundreds of millions of dollars for the state, potentially billions in the future.”
For Australians, the situation unfolding in Gaza and Israel serves as a stark reminder of the risks stemming from governmental overreach in the financial domain. While Australia has yet to embark on demonetization comparable to that of Israel or India, the escalating push toward a cashless society is an issue deserving close scrutiny. The lessons from Gaza are unmistakable: when cash is removed from the equation, the marginalized are often the ones who bear the brunt of the consequences.
A group of so-called specialists—comprising nine businessmen and former public officials—who proposed the elimination of these notes, assert that this measure will recover more than 20 billion shekels (6.3 billion AUD) by the next year, and 110 billion shekels (32.8 billion AUD) over the coming five years. This aims to reinstate the funds to the state and expose tax dodgers.
For those in Gaza, Israel, and beyond, the progression towards a cashless society acts as a clarion call. As governments continue tightening their hold on the financial infrastructure, the demand for decentralized alternatives like Bitcoin becomes increasingly pressing. Whether situated in Australia or the Middle East, the underlying message remains the same: in a landscape where cash is becoming obsolete, Bitcoin provides a means to safeguard your financial autonomy.
In Gaza, cash is more than just a transactional tool; it represents survival. With banks obliterated and ATMs rendered inoperative owing to consistent power outages, the population is left to scrounge for every bit of cash they can obtain. The scarcity of physical currency has led to the rise of a new, desperate trade: cleaning and mending old, worn-out banknotes for reuse. This service, costing between 2 and 5 shekels per note, underscores the extreme strategies individuals are adopting just to sustain their economic activities.
Economic and social repercussions of demonetization in Gaza and beyond
Recently, a new initiative led by Prime Minister Netanyahu was unveiled: the withdrawal of 200 shekel notes from circulation, marking the initial phase toward a complete cash elimination within a few years.
Nevertheless, Roger Huang, an author and journalist, clarified that China’s central bank legally obligates businesses to accept cash as payment and has penalized those that do not, even during COVID. While China is indeed advancing a CBDC (central bank digital currency), it has not implemented any bans or limitations on cash usage.
The proposed policy document outlines several measures to tackle illicit capital:
As anticipated, this action—similar to India’s in 2016—will only increase the instability of Israel’s economy, along with the mental and physical well-being of its citizens. The repercussions of this economic upheaval will also affect Gaza, which uses the Israeli shekel as its currency and significantly relies on cash transactions.
Lo and behold, a fortnight after the initial “recommendation” of this new policy, Prime Minister Netanyahu proclaimed that he is now rapidly advancing this reform to curb illicit capital, particularly within the Arab community, and has called for a special committee to deliberate on the new policy.
Two weeks ago, the first mainstream media article covering this new initiative emerged, normalizing and conditioning the public for this severe policy.
In a world where governments are increasingly striving to control and surveil financial transactions, Bitcoin and other decentralized cryptocurrencies present an opportunity to escape the system. Unlike fiat currencies that can be phased out or devalued at the discretion of a central authority, Bitcoin remains resilient against such manipulation. It functions as a permissionless, borderless currency usable by anyone, anywhere—without the need for a bank or government intermediary.
Israel already enacted a new “big brother” regulation last year, requiring pre-approval from the Tax Authority for any B2B transaction exceeding 25,000 shekels. The new policy plan proposes reducing the threshold for transactions needing pre-approval from the Tax Authority to 5,000 shekels (1,350 AUD), a highly contentious maneuver.
