Foreign Minister Gideon Sa’ar’s proposal to cancel certain series of NIS 200 bills held by Hamas in Gaza is causing a stir: While government officials, including Prime Minister Benjamin Netanyahu and Minister of Finance Bezalel Smotrich, express support for the idea, the Bank of Israel is strongly opposed, while other economists are also highly skeptical.
In a press release, the Bank of Israel has stressed that the authority to cancel bills lies solely with Bank of Israel Governor Amir Yaron. In practice, however, there are voices claiming that with enough government pressure and support from security officials, he could be convinced otherwise.
“A heavy blow to Hamas”
As revealed by “Globes”, back in September 2024 group of experts proposed canceling all NIS 200 shekel bills, to combat black money and criminal elements. The proposal received great interest from some parties, such as the Israel Tax Authority and the Money Laundering Authority, and criticism from others, like the Bank of Israel, which insisted that the reasons for canceling the bill were insufficient, and that the decision belonged to the Bank of Israel Governor and nobody else.
Netanyahu convened professional bodies to discuss the idea, but no decision was made. This is, among other things, due to concerns that criminal organizations would rush to replace the NIS 200 bills they have with NIS 100 bills, which would create a cash shortage for the general public.
Now, a more limited proposal is emerging, with a different aim: not to prevent the flow of black money and harm tax evaders or criminal organizations, but to harm Hamas’ cash reserves in Gaza as part of the war effort. Dr. Adam Reuter, Financial Immunities chairman and one of the leaders of the experts that initiated the cancellation plan of the NIS 200 bills, “We discovered that we know the serial numbers of almost all the bills in the Gaza Strip. They received the shekel bills via Brinks trucks from Israeli banks, so there is a record of them all.”
He adds, “During the war, Hamas robbed all the banks in Gaza, and it also taxes all the financial transactions that go through the merchants and the gangs that have seized control of the food and fuel. Hamas is currently sitting on a mountain of cash worth NIS 3-4 billion shekels, almost all of it in NIS 200 shekel bills.”
With this money, Reuters claims, “It is possible to lead to a significant cash crunch in Hamas, which is the largest employer in Gaza. If it knows that the money will be worthless, it will be stressed out.” According to him, this could even “lead to the release of the hostages.”
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According to another member of the expert group, a researcher on the Gaza economy named Eyal Ofer, “Hamas charges tens of percent on transactions that convert money in the bank into actual cash.”
Sa’ar, whose new director-general Eden Bar-Tal was one of the members of the group that initially proposed canceling the NIS 200 bills, wrote, “This move will constitute a heavy blow to Hamas’s economic capacity and will harm the recruitment of new terrorists into its ranks and its rearmament,” and “Such a heavy economic blow could make a substantial contribution to achieving the goals of the war – eradicating Hamas as a military and government entity and returning the hostages home.” Eyal Ofer adds, “The question now is whether the State of Israel, through the Bank of Israel, which issued all these bills and transferred them to the Gaza Strip, will be able to find a way to cancel the validity of the notes currently in Hamas’ possession in the Strip.”
Ineffective solution
However, not everyone believes such a step would be effective. Experts point out that Gaza merchants may continue to accept the NIS 200 bills despite their official cancellation, which would make them economically significant, and therefore reliable as salaries that Hamas can distribute to its soldiers and supporters. Dr. David Disatnik, Assistant Professor at Tel Aviv University’s Coller School of Management and a member of the Tel Aviv-Yafo City Council, stresses that “eventually, they will stop checking the serial numbers. Therefore, Gaza merchants can assume that they will be able to use these bills in the future. So they will be able to receive them today.” But some government officials insist: “Merchants in Gaza will not be willing to touch invalid series.”
Another problem is identifying the bills, since the division between bills in Hamas’ hands and bills in the hands of Israelis or even other Gazans is not clear. According to Reuter and other government officials, there is a record of those bills, but Dr. Disatnik is more skeptical: “First of all, there are entries and exits of people and goods, even now through third parties. The borders are not really hermetic.”
In his opinion, “The more partial the solution is, the less effective it will be. It is better to go back to the original proposal, to cancel all NIS 200 bills.”
Officials involved in the issue are even more adamant: “Once a bill is in circulation, it is difficult to know where it really is. We do not have enough information for that.”
According to these officials, this cash would have already penetrated back into Israel: “Let’s say there is smuggling between Gaza and the Bedouin in the Negev, and that Bedouin buy at grocery stores in Sderot. Is this the responsibility of the grocery store owner? He lost his money.” According to them, the meaning of this is that “people will not agree to accept NIS 200 bills from now on. Since the essence of money is trust, the ‘partial cancelation’ is equivalent to the complete cancelation of bills.”
Will an app be enough?
Another problem that arises is the hassle and practical problems that will be imposed on Israeli citizens. Anyone who holds NIS 200 bills will have to check that their bills are not from the invalid series, and any business owner who receives them will have to constantly check that these are indeed legitimate bills.
According to Reuter, “This could be addressed by launching an app that would scan the NIS 200 bills, allowing anyone to easily check whether they are legitimate or not.”
However, experts familiar with the issue reject the idea of the app, arguing, “Even if we assume that we know exactly what bills are in Gaza and only cancel them, and the public is notified, what will happen? If someone receives a NIS 200 bill, will they bother to check it or will they simply ask for other bills? Is it your responsibility to check whether it is one of these bills or not?”
Dr. Disatnik adds, “This would create problems, because the grocery store owner would have to check every bill. Even if there was a simple app, it is not practical.” And according to him, if business owners did not bother to check every bill, then it would revalidate the bills and make them relevant again.
Authority of the Bank of Israel
While the cancelation of high-denomination bills has been tried around the world, with greater success (€500 euros in the EU) or less success (cancelation of a large number of bills in India that led to chaos and even deaths), even Reuter, one of the initiators of the proposal, was forced to admit that there is no precedent for this partial cancelation in the world.
On the other hand, he says, “Israel is a special case in which a non-Israeli economy uses its money as legal tender in their own country as well.” Although such a case is not entirely unique (for example, economies close to the eurozone accept euros even though they are not members).
And what about the authority for the move? The Bank of Israel insists that this is within the Governor’s authority alone, but government officials hope that a Knesset law will not be required to make this happen. Meanwhile, Sa’ar has published a letter in which he threatens to advance the issue through legislation if the Bank of Israel does not agree to it.
However, the Bank of Israel’s independence is an important pillar of Israel’s economic resilience and credibility. Undermining it could lead to a loss of investor and corporate confidence and a cut in Israel’s rating. What will actually happen? It is too soon to tell, but due to the support of the Prime Minister, the Minister of Finance, and the Minister of Foreign Affairs – the issue continues to be promoted with all relevant parties.
Published by Globes, Israel business news – en.globes.co.il – on April 27, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
