Palestinian Authority Economy at Risk as Israeli Banks Decline Cash Deposits

The Palestinian Authority (P.A.) is facing an economic crisis that could lead to a full collapse within days, according to officials in Ramallah. This urgent situation arises from a decision by major Israeli banks to stop accepting shekel cash deposits from Arab banks in Judea and Samaria, a move that has severely disrupted financial operations in the region.

The P.A.’s Monetary Authority issued a stark warning on Wednesday, stating that without the ability to deposit shekels, Arab banks will soon be unable to finance trade between Palestinian and Israeli merchants. This disruption is directly linked to the inability to transfer the accumulated shekel banknotes to Israeli banks, a critical function that underpins the financial transactions in the region.

“Imminent consequences on all aspects of life” are expected if Israeli financial institutions continue to refuse the shekel deposits, the Monetary Authority warned in a Facebook post. The shekel, along with the Jordanian dinar, has been a primary currency in Judea and Samaria since the 1990s, following agreements between Israel and the Palestine Liberation Organization.

This banking standoff follows a decision by Israeli Finance Minister Bezalel Smotrich to extend a waiver that protects Israeli banks with ties to the P.A. from lawsuits related to allegations of supporting Palestinian terrorism. The four-month waiver, granted two months ago, was reportedly part of a tradeoff that allowed Prime Minister Benjamin Netanyahu to retroactively legalize several Jewish outposts in Judea and Samaria.

The economic consequences of this banking freeze are severe. Palestinian banks rely heavily on their Israeli counterparts to process financial transactions, including the nearly $8 billion in imports from Israel that cover essentials like electricity, water, fuel, and food. These banking channels also facilitate approximately $2 billion in annual exports, vital for Palestinian livelihoods.

Earlier this year, Smotrich suggested that collapsing the P.A.’s economy might be an appropriate response to Ramallah’s push for unilateral statehood and its support for actions against Israel at the International Criminal Court. “If this causes the P.A. to collapse, let it collapse,” he said, accusing Ramallah of “working against Israel with political terrorism.”

This stance has raised international concern, with U.S. Treasury Secretary Janet Yellen pledging to use "all diplomatic efforts" to prevent such an outcome. In May, Yellen highlighted the importance of maintaining the banking relationships between Palestinian and Israeli banks, emphasizing their role in processing transactions crucial for both the import and export sectors in the Palestinian territories.

As the situation develops, the potential collapse of the P.A.’s economy could have far-reaching implications, not only for the financial stability of the region but also for the broader Israeli-Palestinian conflict.

Stay informed on this developing story by subscribing to our newsletter and sharing this critical update.