In a surprise move, on Sept. 19 Israeli Prime Minister Benjamin Netanyahu instructed his government to promptly terminate the 200 shekel bill. His instruction came on the backdrop of recommendations formulated by a team of nine experts, with the aim of fighting the extensive tax evasion in the country.
Money changers began reporting a shortage of dollars due to the panic that ensued. The Postal Bank recorded a three-fold increase in currency conversions. The Bank of Israel brushed these concerns aside, saying that conversions were limited in scope.
However, despite reports suggesting that the plan was embraced by the Finance Ministry, the Israel Tax Authority and the Israel Money Laundering and Terror Financing Prohibition Authority, it faded almost as quickly as it entered the public’s awareness.
Exactly a week after the proposal was made public, the BoI issued a statement quashing the prime minister’s move—without providing a reason.
“Cancellation of the [200 shekel] note is not on the agenda. The authority to cancel banknotes, according to law, rests with the governor of the Bank of Israel,” the statement read.
“Despite the subject being raised, the governor was not presented with an adequately based professional justification for canceling this or that bill. The governor of the Bank of Israel does not intend to exercise his authority and cancel any banknote or to change the mix of banknotes in circulation. We underscore that the NIS 200 bill in circulation, like other bills and coins, continues and will continue to be used as normal,” the BOI stated.
Eyal Ofer, one of the nine experts who helped formulate the recommendations and a former adviser in Israel’s Environmental Protection Ministry, was highly critical of the central bank.
Speaking to JNS over the phone last week, he said that the BoI had blocked the plan “due to ego. They want to be the initiators of the move. The law gives them the authority to determine which bills exist in circulation, so an external proposal hurt their ego. If they had crafted the plan themselves, they would’ve run with it.”
Another reason for the BOI’s refusal to welcome the plan, Ofer asserted, was that it makes seigniorage profits on bills outside deposit accounts.
“The Bank of Israel makes a profit on every cash bill in circulation,” he explained. “If the public holds 100 billion shekels [in cash], this is paper that the Bank of Israel printed at meager cost and pays no interest for.” Had these bills been deposited in commercial banks, he continued, the BOI would have to pay the banks around 5 billion shekels in interest annually.
Elaborating on the timing of the plan, Ofer pointed to the financial burden of Israel’s ongoing year-long war.
“It is obvious that we are in time of war and [the state is expected to impose higher taxes] on the public, and in particular, on the productive sector that pays taxes. It is quite easy for the Finance Ministry to rake in taxes from study funds [Keren Hishtalmut, a tax-exempt savings track] and raise the VAT [Value Added Tax] … instead of focusing on crime families that evade all tax payments,” he added.
Ofer estimated that around 70 billion shekels ($18.48 billion) of undeclared capital in the form of 200 shekel bills circulates in Israel’s black markets.
“A regular person who transacts in cash will normally use 50 shekel or 20 shekel [bills]. He doesn’t walk around with a bucketload of 200 shekel bills. Most of us use credit cards, [the payment app] bit, a digital wallet via smartphone—we are moving toward a digital world today,” he said.
“We should encourage a move to a completely digital economy; there are countries that are already doing this,” he added.
In Scandinavia, Ofer noted, there is hardly any use of cash. The Indian government, he cited as another example, moved quickly to cancel high value bills in a similar policy to what the Israeli plan proposed. But the BoI “sided with the crime families,” he stated.
A cashless economy
Although the plan to shrink Israel’s cash in circulation is now off the table, many believe that a cashless society is an inevitable outcome in today’s digitized economy. Dror Goldberg, an economist and senior lecturer at the Open University of Israel, is one of them.
Speaking to JNS last week about the challenges posed by a transition to digital money, he said: “We should view [the latest move] to cancel large bills as perhaps a transition to a digital shekel, which the Bank of Israel is at least thinking about very seriously. In fact, there is a team discussing the matter.”
If the BoI is considering a digital shekel but opposed the government’s plan, “it probably has very serious information that [the 200 shekel bill] helps significant parts of the population who might have difficulties without it. When someone is apparently acting against his own interest, against a policy he is trying to promote, he probably has information that points in the opposite direction. That would be my guess at this stage,” Goldberg said.
“It’s pretty clear that large bills help tax criminals, terrorists and drug dealers,” he said, “But like most things in economics, there are no solutions, only trade offs. You try to hurt [criminals], you’ll also hurt people who didn’t do anything wrong. I don’t happen to often use 200 shekel bills, but they could be vital and useful for many people in the country—perhaps for people who don’t get along with credit cards, or for people who technologically may have problems with banks. It is up to the Bank of Israel to understand exactly who uses bills and for whom they are essential.”
According to U.S. Federal Reserve statistics, cash payments have decreased by almost 20% in the past nine years, with 2024 registering the lowest point at 16% of all transactions in North America.
The Reserve Bank of Australia published a Consumer Payments Survey in 2022 indicating that the coronavirus pandemic had accelerated the use of digital payments, with cash transactions falling by half in three years, from 32% to 16% by 2022. United Kingdom data in 2022 showed similar numbers, with all cash payments falling to 14%. Official figures in Israel are not available, but reports suggest that the percentage of cash transactions is similar, at least for payments registered legally.
A formal government committee tasked with limiting the use of cash in 2014 stated in an interim report that “according to tax authority estimates, about fifth of the State of Israel’s economic activity is not reported,” which accounts for “about NIS 40-50 billion in state income losses.”
In 2022, the Israeli parliament passed a law prohibiting the use of cash in deals that exceed 6,000 shekels. The recent move to terminate the 200 shekel bills was reportedly only part of a broader scheme to gradually shift toward a cashless economy, where transactions would be made exclusively with debit transfers or deferred credit payments.
Ofer stressed that the plan for less cash comprised two parts. “One, to seize the undeclared capital hitherto accumulated and to incentivize people to deposit it in the banks—granting the Bank of Israel and the Tax Authority the opportunity to detect illegal or tax-evasive activities. Two, to make it harder for these people in the future to hoard great amounts of cash, because that would require larger quantities of bills [after the expiration of the 200 shekel bills].”
Hebrew media reported that the plan proposed a short timeframe for voluntary disclosure of undeclared capital without citizens being prosecuted for evading taxes.
“If we could,” Ofer added, “we would also cancel the 100 shekel bill. But we didn’t want to cause too much strain on the public.”
Goldberg believes that physical money will not survive the digital revolution.
“I am 52 years old. I was born into a world of newspapers, TV sets, radios, cameras, typewriters, computers … and all these separate things, including a large portion of our social lives, were absorbed into this one rectangle,” he related, raising his smartphone.
“So to say that all of these things have disappeared, but 2,500-year-old coins and, let’s say, 500-year-old banknotes will survive physically—I think it’s exaggerated and pretentious,” he said.
The question is, Goldberg stressed, whether the digital shekel will be issued by the state or will we use private digital coins such as Bitcoin.
“To some degree I would like physical money to stick around,” he continued. “You may have electricity outages due to bad winters, earthquakes, and in our region, rockets hitting power plants. But I just don’t see it happening.”
A CBDC future?
In January, 2022, the U.S. Federal Reserve Board released a 40-page document exploring “potential benefits and risks” of a central bank digital currencies (CBDCs). The Fed defined a CBDC as “a digital liability of a central bank that is widely available to the general public.”
Last May, the U.S. House of Representatives passed a bill along partisan lines forbidding the Federal Reserve from issuing a CBDC unless given a formal authorization from Congress.
House Majority Whip Tom Emmer (R-Minn.) warned that a CBDC “could give the federal government the ability to surveil Americans’ transactions and choke out politically unpopular activity.”
In a New Hampshire rally, former president Donald Trump pledged that “As your president, I will never allow the creation of a central bank digital currency. Such a currency would give a federal government, our federal government, the absolute control over your money. They could take your money. You wouldn’t even know it was gone. This would be a dangerous threat to freedom.”
From the opposite side of the aisle, Rep. Maxine Waters (D-Calif.) argued that the bill threatened the “primacy of the U.S. dollar. There is nothing inherent about a CBDC that would compromise privacy—that is a design feature that is within our control. This bill is, instead, an attempt to stifle U.S. innovation and competitiveness abroad, and to undermine the federal agency that is the most critical to fighting inflation.”
An online CBDC tracker shows that three countries—the Bahamas, Jamaica, and Nigeria—have already launched a CBDC. Forty-four countries, including Israel, have piloted a CBDC, according to the tracker.
Goldberg raised the possibility of a CBDC existing alongside private digital forms of money.
“On the one hand, we already have private digital money in a very conservative form, which is linked to the state. The money we transfer from our deposit accounts is private digital money that the bank creates out of ‘thin air’ on the base of its physical money held at the Bank of Israel. Cryptocurrencies are the fully private alternative. Can a digital shekel make room for these alternatives? In the case it doesn’t, it can be risky, putting all your eggs in one basket,” he said.
“Both technologically and constitutionally,” he continued, “it will grant the state enormous power, so we must be cautious about that. If the U.S. government sanctions you personally, with no trial, with no hearing, what will you do [without cash]? What if the defense minister or finance minister decides to reset your bank account? We need serious constitutional protection.”
The cash alternative: gold
Hebrew media reported that Israel’s plan to reduce cash in circulation—alongside additional steps in the fight against undeclared capital, such as using artificial intelligence to detect tax evaders—also proposed the prohibition of cash substitutes like gold, silver, medals, coins, etc.
Adam Reuter, one of the experts who formulated the plan, confirmed the reports, telling JNS, “We also proposed banning the possession of cash substitutes in significant amounts (mainly gold), but this was secondary in importance, in our opinion.”
Goldberg framed this as a would-be dramatic move.
“In Israel we are used to the government dramatically [undermining] individual freedoms; we’re in an existential war, sometimes more, sometimes less. But we normally let the government get away with it. In any other country this would have created a storm,” he noted.
“The U.S. expropriated gold during the Great Depression in 1933, but it did not stir a mass rebellion only because of the crazy financial crisis. I project that in Israel there won’t be much opposition [to the prohibition of gold],” he said.
This, he added, was “a shame. The government should be worthy of the use of its money. Not that it should necessarily create artificial competition [in money], but it should be worthy for us to demand its money, because otherwise the temptation for inflation will increase.”
Amid the rising levels of global debt, financial recessions and geopolitical instability, gold prices have recently surged to $2,600 per ounce. According to Sound Money Defense League, a U.S.-based organization dedicated to restoring gold and silver as America’s constitutional money, 45 American states have in recent years eliminated sales tax on precious metals, indicating a national trend to alleviate regulations and prohibitions on gold.
Goldberg lamented that “the monetary state [in Israel] has always contrasted individual freedom.”
He mentioned two Israeli laws from 1954 and 2010 that grant the Bank of Israel Governor the authority to forbid the use of cash substitutes. “I think that at the time of Stanley Fisher’s [BoI] governorship, he issued a decree to [supermarket chain] Shufersal to stop selling a product that resembled bills … Proscribing by law the possession of cash substitutes, regardless of the governor’s discretion, would have taken this monetary policy one step further, which is dramatic.”
Requesting comment from the Prime Minister’s Office on whether it intended to propose a new plan to limit cash in Israel, the PMO spokesperson replied: “The prime minister directed the minister of finance to hold a discussion on the issue.”
The Finance Ministry commented: “Our officials were called up for reserve duty and are having a bit of trouble responding at the moment.”
