A few days ago, a significant initiative led by Israeli Prime Minister Benjamin Netanyahu was announced, which could dramatically reshape the country’s economy and society. The plan involves removing 200 shekel bills from circulation as the first step toward a cashless future.
Over the next few years, Israel aims to abolish the use of cash entirely, similar to India’s demonetization in 2016.
The Official Reasoning: Combating Financial Crimes
The government’s official stance on this move is clear—fighting financial crimes, tax evasion, and the accumulation of black money, with a particular focus on the Arab community in Israel. This is notable given that 1.6 million Arabs, comprising 17% of Israel’s population, could be significantly affected by the move.
According to the government, this reform is a necessary step to curb illegal financial activities that rely heavily on cash transactions. By removing the 200 shekel bills, the government argues that they can force unreported capital back into the system, reduce tax evasion, and tighten control over financial activities.
Economic Instability on the Horizon
As with any major shift in monetary policy, this initiative is expected to have far-reaching consequences. Critics have drawn parallels to India’s 2016 demonetization, which caused widespread economic disruptions, chaos, and hardship, particularly among the poor.
In Israel, the removal of cash could destabilize not just the economy, but also the mental and physical well-being of its citizens.
The value of the Israeli 200 shekel note is significant. These bills account for nearly 80% of the cash in circulation, with an estimated worth of over 100 billion shekels. According to government reports, the majority of these 200 shekel notes are not used for everyday purchases but are instead stored as undeclared capital, often linked to illicit activities.
The goal, according to the government’s panel of experts—comprising nine businessmen and former public officials—is to recover approximately 20 billion shekels ($5.3 billion) by next year, and potentially 110 billion shekels ($29 billion) over the next five years, bringing it back into the formal economy.
However, there is growing concern that the removal of cash could worsen existing socio-economic disparities. Cash remains a vital means of transaction for many low-income households, small businesses, and informal workers who rely on it for day-to-day survival.
Furthermore, removing cash from the system could leave certain vulnerable populations without access to essential financial services, especially in rural areas where digital payment systems are not as widespread.
The Impact on Gaza
One of the most profound ripple effects of this policy will be felt in Gaza. Gaza uses the Israeli shekel as its currency, and its economy is already under immense strain due to conflict and blockades. The reliance on cash in Gaza is particularly high, and the removal of 200 shekel bills will likely exacerbate the cash shortage in the region.
Gaza has been dealing with severe economic hardship for years, including limited access to essential resources such as food, water, electricity, and cash. As banks have been destroyed and ATMs have become inoperable due to frequent power outages, many residents are forced to reuse worn banknotes. A new profession has emerged in Gaza: refurbishing and cleaning old bills.
The closure of bank branches and the lack of fresh currency have made life in Gaza even more difficult. Many residents, especially in northern Gaza, argue that reopening banks and injecting fresh cash into the economy is the only viable solution. Without fresh currency, the risk of counterfeit notes and economic destabilization will continue to grow.
The broader impact of removing cash from circulation in Israel will extend into Gaza, creating additional challenges for the region’s already fragile economy. Merchants, small business owners, and everyday residents will find it increasingly difficult to conduct transactions and access basic goods, further destabilizing an already precarious situation.
The Government’s Larger Agenda: A Cashless Society
The 200 shekel bill is just the beginning. The Israeli government has outlined a broader plan to phase out cash entirely, aiming for a complete transition to digital payments within a few years. The process will be implemented in three stages:
- Limit Cash Transactions: In the first phase, cash transactions will be limited to 3,000 shekels ($800) within the next 2-3 years.
- Lower the Transaction Limit: The transaction limit will then be reduced to 2,000 shekels ($530), further restricting the use of cash.
- Abolish Cash: The final phase will involve abolishing the use of cash entirely, encouraging citizens to adopt digital payment methods instead.
This policy also includes several other measures aimed at combating black money. For example, the government plans to broaden the obligation for citizens to report their cash holdings to authorities.
This would make it harder for individuals to hoard undeclared cash. The government is also considering banning the possession of cash substitutes such as gold, silver, medals, and coins in large quantities, to crack down on alternative forms of wealth storage.
Leveraging Technology to Fight Tax Evasion
A key component of Israel’s move toward a cashless society is the use of advanced technology, particularly artificial intelligence (AI). AI will play a crucial role in monitoring and enforcing tax compliance.
The government has proposed leveraging AI tools to detect tax evasion and illegal financial activities in real time. This would allow authorities to quickly identify suspicious transactions, ensuring that individuals and businesses are paying their fair share of taxes.
In addition to AI monitoring, Israel plans to launch a collaborative enforcement effort that includes the Tax Authority, the Anti-Money Laundering Authority, the police, the prosecutor’s office, and the Counter-Terrorism Economic Warfare Headquarters.
These agencies will work together to enforce the new regulations and crack down on financial crimes.
Seizing Digital Currencies Linked to Terrorism
As part of its broader effort to combat illicit financial activities, the Israeli government also plans to regulate and seize digital currencies linked to terrorist organizations. This is a particularly pressing issue, as digital currencies such as Bitcoin have become a popular means for terrorist groups to move money across borders without detection.
According to a leaked draft of the policy dated March 2024, Israel aims to implement technologies that can identify and disrupt the flow of digital funds used for terrorism and crime. By doing so, the government hopes to seize hundreds of millions, if not billions, of dollars linked to terrorist activities.
Additional Cash Restrictions
The move toward a cashless society in Israel has been underway for several years. In August 2022, Israel introduced new restrictions on cash purchases. The law limits any payment to a business over 6,000 shekels to digital methods, such as credit cards or bank transfers.
Trading between private citizens, who are not registered as business owners, is limited to 15,000 shekels in cash.
Furthermore, Israel has introduced a pre-approval requirement for B2B transactions over 25,000 shekels. This policy will be expanded under the new initiative, lowering the threshold for pre-approval from the Tax Authority to just 5,000 shekels.
Critics argue that this move is overly intrusive and will add unnecessary bureaucratic hurdles for small businesses.
A Look at Global Trends
Israel’s push to abolish cash is not happening in isolation. Similar policies have been implemented in other parts of the world, particularly in China, where digital payments have become the norm in many cities.
However, as journalist Roger Huang points out, China’s central bank has not banned the use of cash entirely. It is illegal for businesses in China to refuse cash payments, and the government has punished businesses for doing so, even during the COVID-19 pandemic.
China may be pushing aggressively toward a Central Bank Digital Currency (CBDC), but it has not implemented outright bans on cash usage. This is in stark contrast to Israel’s approach, which seeks to gradually eliminate cash.
Israel’s governing bodies often point to other countries as examples to justify their policies, but the reality is that very few nations have gone as far as Israel is planning to.
Conclusion: What Does the Future Hold?
The move to abolish cash in Israel is a bold and controversial step. While the government argues that it is necessary to fight financial crimes, many fear that it will lead to greater economic instability, exacerbate social inequality, and erode personal freedoms.
The impact on Gaza will be particularly severe, as the region is already struggling with a severe cash shortage.
As Israel moves toward a digital-only economy, it raises important questions about the future of financial privacy, government control, and individual freedoms. The push for a Central Bank Digital Currency (CBDC) is another worrying trend, as it could give the government unprecedented control over the financial system.
In such uncertain times, learning about alternative financial systems like Bitcoin becomes essential. Bitcoin offers a decentralized and secure form of currency that operates outside of government control, making it a valuable tool for those who wish to hedge against government overreach.
As the world watches Israel’s experiment with going cashless, one thing is clear: the economic landscape is rapidly changing, and with it, the balance of power between individuals and the state.