A few days ago, a new initiative called for by Prime Minister Netanyahu was announced, namely the removal of 200-shekel banknotes from circulation, as a first step towards abolishing cash completely within a few years.
The official argument? Combating financial crimes and black money in Arab society.
As expected, this move – which is similar to India’s in 2016 – will further destabilize the Israeli economy and the physical and mental health of its citizens. The economic shock will be felt in Gaza, which uses the Israeli shekel as its currency and whose population is clearly heavily dependent on cash.
So let’s break it down.
Cancellation of 200 shekel banknotes
The value of 200 shekel banknotes in Israel exceeds 100 billion shekels, and constitutes nearly 80% of the banknotes owned by the public. In a recent attempt to discredit the holders of the banknotes, Reported “Most of the 200-shekel notes are not used for purchases, but for accumulating black capital.” A team of so-called experts: nine businessmen and former public sector officials, who initiated the idea of canceling the notes, claim that canceling the notes would recover more than 20 billion shekels ($5.3 billion) by next year, and 110 billion shekels ($29 billion) in the next five years – returning them to the state, and forcing the exposure of tax evaders.
2 weeks ago, Firstly An article appeared in the mainstream media about this new initiative, to normalize and prepare people for this harsh measure.
The proposed policy document proposes several steps to combat black capital:
- Withdrawing the NIS 200 bill from circulation, and expanding the obligation to report cash holdings to the authorities. This is part of a larger plan to completely eliminate cash in 3 stages: 1- Limiting cash transactions to NIS 3,000 ($800) within 2-3 years, 2- Reducing the amount of transactions to NIS 2,000 ($530), 3- Eliminating the use of cash altogether, while encouraging digital payment methods.
- Leveraging AI tools to monitor and enforce tax evasion,
- Launching joint enforcement efforts involving various key agencies, such as the Tax Authority, the Anti-Money Laundering Authority, the Police, the Attorney General’s Office, and the Economic Warfare Headquarters for Combating Terrorism.
- Prohibition of the possession of cash substitutes, such as gold, silver, medals, and coins, on a large scale.
- Strengthening the regulation of non-bank financial entities, including currency exchange services, that handle large amounts of illicit funds.
- Confiscation of cryptocurrencies linked to terrorist activities of sanctioned entities – “Technologies exist that enable real-time identification of such financial transfers, and Israel needs to implement them immediately. This will allow disrupting the flow of funds to terror and crime, identifying terror operatives, and confiscating hundreds of millions of dollars for the state, and possibly billions of dollars in the future.” (This part is from a leaked draft of the plan dated March 2024; it has not appeared in major media publications – EF)
Two weeks after the first “proposal” of this new policy, Prime Minister Netanyahu announced that he was now working to urgently advance this reform in order to combat black capital, especially among the Arab population, and called for the formation of a special committee to discuss the new policy.
Last year, Israel introduced a new regulation called “Big Brother,” requiring pre-approval for any business transaction with the tax authority worth more than NIS 25,000. The new policy plan now proposes lowering the threshold for transactions requiring pre-approval from NIS 25,000 ($6,750) to NIS 5,000 ($1,350), a highly controversial move.
The largest major publication in Israel, And netRecently, the Israeli newspaper Haaretz reminded its readers that “similar steps have been taken in other countries. In parts of China, cash has been banned altogether in certain cities.” The governing bodies in Israel like to use the excuse that “other countries are already doing this too” to justify their actions. The same mantra is played over and over again whenever the digital shekel is mentioned. I recently listened to a podcast with the governor of the Bank of Israel who positively mentioned the progress the European Central Bank is making in dealing with the digital euro, for example.
• Israel is promoting an initiative to abolish the 200-shekel banknote as a first step to restrict the use of cash and eliminate its circulation. As happened in India in 2016.
• Physical gold and silver may be prohibited from being held. 🪙💰
• Gaza residents suffer from financial hardship due to the decline in… pic.twitter.com/XUbCUKDgFE
— Efrat Fenigson (@efenigson) September 22, 2024
The video of the new 200 bills plan has gone viral and has achieved 70 thousand views. Share it. here
India to demonetize 500 and 1,000 rupee notes in 2016
In November 2016, The Indian government has taken a similar decision. This decision was the step that Israel is now considering, withdrawing the 500 and 1,000 rupee notes from circulation. In the wake of this decision, hundreds of people lost their lives, many others faced financial difficulties, and the country’s GDP took a major hit.
From this article from 2016 Fox:
Tens of thousands of people have taken to the streets of cities across India to protest an economic policy you may not have heard of before: demonetization.
Three weeks ago, Indian Prime Minister Narendra Modi surprised his country by announcing a ban on 500-rupee and 1,000-rupee notes — worth about $7 and $15, respectively — in an attempt to tackle corruption and terrorism.
He argued that forcing people to replace the country’s largest banknotes with new ones would allow the government to crack down on “black money”—unregistered cash that is not taxed but should be taxed by law. He also claimed that it would hit domestic terror financing operations by seizing counterfeit money and turning legitimate funds held in secret into worthless cash.
Banning widely used banknotes would have a huge impact on any economy, but in India the policy is transformative. Modi’s sudden ban immediately means that 86 percent All cash in circulation in India can no longer be considered legal tender, meaning businesses can refuse to accept these notes as a form of payment. The Indian economy is simply cash-based: it is estimated that between $100 and $200 million of banknotes in circulation in India are no longer considered legal tender. 90 and 98 percent Of all the transactions in India, measured by volume, this involves.
It’s no surprise that Modi’s demonetization initiative has caused chaos across the country. People want new notes, but the current supply is not enough to meet demand. This has created a headache for people as they wait in long lines outside ATMs and banks, which routinely run out of cash. For people who rely on daily cash income to survive, it can mean going without food.
In this fascinating lecture by Andreas Antonopoulos, a renowned Bitcoin developer and lecturer, dating back to 2016, Andreas discusses the currency war between countries. He details the currency crisis in India and other examples of countries whose citizens are being punished for their failing currencies (Venezuela, Argentina, Ukraine, Turkey, etc.).
All of these experiments in one country serve as a testing ground for future applications elsewhere (such as the 2012 seizure of bank deposits in Cyprus or the efforts to protect banks from collapse in the United States over the years). As debt continues to rise, the economy deteriorates, and inflation worsens, these experiments will only accelerate. We can expect more taxes, more restrictions on cash, more confiscations, and higher prices along with inflation. Eventually, this deteriorating situation will provide sufficient justification for the introduction of a new digital control system known as a CBDC, if it is not preceded by another “crisis” or “emergency.”
Additional cash restrictions in Israel
The Israeli government has tightened its policy on the use of cash in recent years; today, there are no official limits on the amount of cash that can be kept at home, but the government has repeatedly stressed that it does not view this practice favorably and prefers to conduct as many transactions as possible through non-cash payment methods and money management. At the same time, the government is advancing legislation that would make it illegal to keep more than NIS 200,000 in cash. In addition, keeping cash amounts of NIS 50,000 or more would require explanations to the authorities about the source of the money and its intended use.
In August 2022, Israel announced that it would ban cash purchases of more than NIS 6,000. This reform, according to a statement from the Israeli Ministry of Finance, aims to Tax AuthorityTo combat organized crime, money laundering and tax non-compliance.
the Jerusalem Post Reported in 2022:
Under the new law, any payment to a business of more than NIS 6,000 ($1,700) must be made using alternative methods, such as digital transfer or debit card. Trade between private citizens who are not registered as business owners will be limited to NIS 15,000 ($4,360) in cash. This is another step in Israel’s fight against the use of cash. Previously, cash could be used for business transactions up to NIS 11,000 ($3,200).
“We want the public to reduce the use of cash,” Attorney Tamar Bracha, who is responsible for implementing the law on behalf of the Israel Tax Authority, told The Media Line. “The goal is to reduce the liquidity of cash in the market, mainly because criminal organizations tend to rely on cash. By reducing its use, it becomes more difficult to carry out criminal activities.”
“The goal is to limit cash liquidity in the market, mainly due to the tendency of criminal organizations to rely on cash” – Attorney Tamar Bracha, Israel Tax Authority, 2022
Cash situation in Gaza
The cash shortage in Gaza has exacerbated already difficult conditions, making it difficult for people to buy food and basic supplies.
In Gaza, scarcity is not limited to food, water and electricity. After nearly a year of conflict, cash is in severe short supply. Banks have been destroyed, and frequent power cuts have put ATMs out of action. Reports Reports from the region highlight how this cash shortage is exacerbating the daily struggle for survival, while IDF raids on Hamas sites have uncovered millions of shekels and large sums of US dollars stored there.
Cleaning with soap and water and returning to customers.. The crisis of worn banknotes in Gaza
As stated in And net:
“The shortage of new money and the closure of many bank branches due to the war have forced Gazans to reuse the same banknotes for almost a year. “With frequent use, the banknotes become worn and frayed, and I refuse to accept them,” says one market vendor. Meanwhile, a new profession has emerged in the sector: cleaning and refurbishing worn banknotes.
The closure of many bank branches in Gaza since the beginning of the war has led to a severe cash shortage, forcing residents to continue using old, torn banknotes. A new business has emerged called “banknote cleaning,” where old banknotes are cleaned and restored for reuse, with the service costing between 2 and 5 shekels per banknote.
Traders, especially in northern Gaza, warn that the only real solution to this crisis is to reopen the closed banks and pump new money into the market, otherwise the risk of counterfeit currency will increase.
In addition, withdrawing cash from ATMs in Gaza comes with hefty fees of 10% to 20%. Before the war, there were about 20 currency exchange offices in Gaza City alone, either run by Hamas or taxed by it. These offices traded and converted different currencies, along with many informal money changers operating on market corners.
Where do we go from here?
Israel’s move to non-cash transactions is another step toward tightening controls and violating the property rights of its citizens and neighbors. This development adds to other worrying trends in Israel, such as the erosion of citizens’ pensions, and Israel’s progress in the field of digital currencies, or the digital shekel.
We are living in a new economic reality. In times like these, learning about Bitcoin becomes a necessity, in order to hedge against government tyranny with the only truly secure and decentralized cryptocurrency that is not controlled by anyone, is not subject to any permission whatsoever, and is not subject to government control.
This is a guest post by Efrat Fenigson. The opinions expressed here are entirely his own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.