Palestinian Monetary Authority (PMA) governor Feras Milhem has announced that the proto-central bank – which does not issue national currency and operates under extremely restrictive political and economic conditions – is examining the idea of issuing a Palestinian digital currency.
Raja Khalidi, director of the Palestine Economic Policy Research Institute, told Bloomberg that “the macroeconomic conditions do not exist to allow Palestinian currency – digital or otherwise – as a medium of exchange.”
However, Khalidi argued that the PMA’s issuance of some form of digital currency “could send a political signal to show the seeming semblance of monetary autonomy from Israel”. Khalidi’s view was borne out by Barry Topf, former senior adviser to the Governor of the Bank of Israel, who claimed that no Palestinian digital currency will “replace the shekel, the dinar or the dollar. It will certainly not be a store of value or a unit of account. “
The Occupied Territories of the West Bank and Gaza Strip don’t seem like the cheapest place to bring a centrally issued digital currency to market. The former has faced a 14-year blockade that nearly collapsed its economy, subject to severe Israeli restrictions, and survived four wars since 2008.
The latter is under the jurisdiction of the Palestinian Authority (PA), which has limited governmental powers, administrative but not military, in less than 40% of the West Bank. The PMA’s jurisdiction is different from that of the PA and extends to Gaza and West Bank areas under full Israeli control.
According to the provisions of the Paris Protocol of 1994, the PMA has powers similar to that of a central bank, but cannot issue its own currency. In addition to the Jordanian dinar and the US dollar, the West Bank and Gaza remain primarily dependent on the Israeli shekel.
In an interview with Bloomberg Television on June 24, Milhem said that the PMA is currently investigating the issue of digital currencies in line with central banks around the world, but that no decision has been made to issue. When asked about the potential benefits of such a move, Milhem addressed the specific challenges facing the institution:
“Our goal is to limit the use of cash, especially Israeli cash. We have an inordinate amount of Israeli cash in our market that we cannot transfer to the Israeli side […] our strategy is to use a digital currency for payment systems in our country and hopefully […] to be used for cross-border payments. “
The shekel glut in Palestinian banks stems from Israeli restrictions on large cash transactions, citing anti-money laundering concerns. Israel also limits how many Palestinian banks can remit back to Israel each month, which is a significant difficulty given the large and complex overlap between the two economies.
At various times, Israeli banks have also threatened to suspend correspondence services for Palestinian banks. With shekels abundant, Palestinian banks are sometimes forced to borrow additional funds to meet their foreign exchange liabilities to third parties.
Israel also administers the taxes of the Palestinians and belatedly released $ 1.14 billion in revenue raised on behalf of the PA in December 2020 after a seven-month political crisis related to Israel’s offer to further illegally annex areas in the West Bank were de jure and not only de facto, like right now.
Related: Palestinian Authority is considering crypto as a replacement for the Israeli shekel
In this tense political, institutional and macroeconomic context, where the Occupied Territories are still heavily dependent on aid donations and Israeli remittances, and the economy is tense both from Israeli measures and the effects of the global pandemic, analysts have noted the issue Digital currencies could potentially be a more difficult issue of political symbolism than monetary pragmatism.
In 2019, then-Palestinian Prime Minister Mohammad Shtayyeh Raif said he would consider using cryptocurrency as an alternative to the shekel in an attempt to better isolate the Palestinian economy from Israeli restrictions and political threats.
However, then as now, analysts argued that “the problem with the Palestinian economy is not currency, it is a complex economic and political reliance on Israel,” noting that another currency could not lift import / export blockades or withholding tax breaks .