As part of their 1990s deals with Israel, the Palestinians agreed not to immediately create their own currency, and their economy primarily uses the Israeli shekel, as well as the Jordanian dinar and the US dollar.
Palestinian banks are currently inundated with shekels because of an Israeli law banning large cash transactions, intended to combat money laundering. Israel also limits the number of shekels that Palestinian banks can transfer to Israel each month. As a result, they sometimes have to borrow to cover foreign currency payments to third parties and end up with a glut of Israeli banknotes. This could be one of the reasons why a digital currency would be attractive to the Palestinian monetary system.
Two cryptocurrency studies are underway and no decision has been made yet, but the hope is eventually to use digital currency “for payment systems in our country and hopefully with Israel and others for actual payments, ”Palestinian Monetary Authority Governor Feras Milhem said. in an interview with Bloomberg Television.
It may not be feasible, however.
The Palestinian economy is inherently weak, severely constrained by Israeli limitations on the free movement of goods and people. It relies heavily on donor money and remittances from Israel.
Raja Khalidi, director of the Palestine Economic Policy Research Institute, said that “the macroeconomic conditions do not exist to allow a Palestinian currency – digital or otherwise – to exist as a medium of exchange.”
However, he added, the issuance of some sort of digital currency could “send a political signal to show the apparent appearance of monetary autonomy from Israel.”
Palestinians join monetary authorities from Sweden to China to examine the potential of national digital currencies as the declining use of banknotes and coins threatens to disrupt traditional payment methods. The emergence of cryptocurrencies such as Bitcoin has increased pressure on central banks to ensure they have a viable alternative before unregulated forms of payment take over.
Barry Topf, former senior adviser to the governor of the Bank of Israel, agreed that a Palestinian digital currency is highly unlikely to be a true medium of exchange. “It will not replace the shekel, the dinar or the dollar. It will certainly not be a store of value or a unit of accounting.
A credit crunch has left the Palestinian private sector strapped for cash, and the European Investment Bank has pledged $ 425 million in loans that Milhem wants to channel to small and medium-sized businesses in the West Bank and Gaza Strip. Fearing the money could end up in the hands of the ruling Hamas movement in Gaza, considered a terrorist group by the United States and Israel, Milhem said all funds would be distributed through banks regulated by the PMA.
“Our banks have very strict rules,” he said. “They implement the rules of ‘know your customer’. In this case, we are not worried.
–With the help of Alisa Odenheimer and Fadwa Hodali.