Palestinian Monetary Authority regards cryptocurrencies as a “political signal”

Palestinian Monetary Authority (PMA) Governor Feras Milhem has announced that the central bank – which does not situation neighborhood currency and operates below quite restrictive financial and political situations – is investigating the thought of ​​developing a Palestinian digital currency.

Raja Khalidi, director of the Palestine Economic Policy Research Institute, told Bloomberg that “Macroeconomic conditions do not allow the Palestinian currency – digital or otherwise – to exist as a medium of exchange.

However, Khalidi argued that the PMA’s release of any form of digital currency “could send a political signal indicating the apparent emergence of monetary autonomy for Israel”. Khalidi’s view was confirmed by Barry Topf, a former senior advisor to the governor of the Central Bank of Israel, who stated that no Palestinian digital currency will “replace the shekel or 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 do not appear to be the most favorable places to adopt a digital currency due to the centralization of spending. The region was previously under a 14-year blockade that brought the country’s economy to the brink of collapse, was severely constrained by Israel, and has suffered four wars since 2008.

The Palestinian Authority (PA) has limited administrative powers in less than 40% of the West Bank – administrative, not military. The PMA’s jurisdiction differs from that of the protected area, which extends to areas of the Gaza Strip and the West Bank under full Israeli control.

Under the provisions of the Paris Protocol of 1994, the PMA has the same powers as a central bank but cannot issue its own currency. The West Bank and Gaza remain largely dependent on the Israeli shekel, along with the Jordanian dinar and the US dollar.

In an interview with Bloomberg Television on June 24, Milhem said that the PMA is currently working on issuing digital currencies in coordination with central banks around the world, but has not yet made any decisions. When asked about the potential benefits of such a move, Milhem addressed the specific challenges the company is facing:

“Our goal is to limit the use of cash, especially Israeli cash. We have too much Israeli cash in our market and we have problems switching to the Israeli side phía […] our strategy is to use a digital currency for the payment systems in our country and hope […] to use for cross-border payments. “

The shekel surplus in Palestinian banks is due to Israeli restrictions on large cash transactions imposed over anti-money laundering concerns. Israel also limits the number of Palestinian banks that can remit back to Israel each month, creating a significant emergency as the two economies overlap in broad and complex ways.

In various places, Israeli banks have also threatened to stop brokering services for Palestinian banks. When there is an oversupply of shekels, Palestinian banks are sometimes forced to borrow more to meet their foreign exchange liabilities to third parties.

Israel also administers Palestinian taxes, and in December 2020, after a seven-month political crisis related to Israel’s efforts to continue illegally annexing the West Bank areas, it announced late receipts of $ 1.14 billion on behalf of the reserve were collected. de jure and not only actually, from now.

Related: Palestinian Authority sees cryptocurrency as a replacement for the Israeli shekel

In this broad political, institutional and macroeconomic context, where the Occupied Territories are still heavily reliant on Israeli aid and remittances, and the economy is strained by the dynamism of Israel and the impact of the global pandemic, analysts note that the issue of a digital Currency is possibly more a question 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 effort to better isolate the Palestinian economy from Israeli restrictions and political threats.

Currently, however, analysts argue that “the problem with the Palestinian economy is not its currency, but its complex economic and political dependence on Israel,” noting that one particular currency and a different can’t unblock imports and exports, or withdraw funds from taxes.