The Impact of Israeli Restrictions on Palestinian Banks
Over 1 billion dollars are sitting idle in the vaults of banks in the Palestinian Territory due to Israeli restrictions and the aftermath of war, affecting their profits and increasing the number of thefts. While most companies worry about not having enough cash, for creditors the problem is having too much of it. The excess amounts to 4.2 billion shekels – one of the many constraints in the financial system, which, on top of everything, is struggling to cope with the losses from the war and the punitive measures imposed by Israel.
The Financial Minister and the Cash Hoard
The financial minister of a certain country has been accused of being an ultra-nationalist. Bankers and official representatives from the sector claim that the amount of cash sitting idle in the vaults on the West Bank is equivalent to over 1 billion dollars, not only depriving creditors of income and complicating transactions, but also becoming an increasingly attractive target for thieves.
“This is a problem,” states an official Palestinian representative regarding the pile of cash, expected to reach 8 billion shekels by the end of the year – an amount equivalent to over 15% of the West Bank’s GDP. He further adds that these piles of cash are a burden on the economy and must be dealt with swiftly.
The Impact of Israeli Restrictions on Palestinian Banks and Traders
Israeli restrictions are causing major difficulties for Palestinian banks and traders who do business with Israel. The excess money is drawn from the long-term ceiling imposed by Tel Aviv on the volume of available funds that West Bank institutions are allowed to transfer to the Israeli Central Bank. Creditors from the Palestinian territories use the Israeli currency in accordance with an economic agreement signed in the 1990s. Before the outbreak of the war between Hamas and Israel in Gaza on October 7, 2023, the main source of funding for Palestinian banks and traders was…
The Impact of Palestinian Workers on the Israeli Economy
According to well-informed sources, Palestinian workers on the West Bank have been a significant source of income for the Israeli economy. These workers, who are employed in various sectors in the Jewish state, receive their wages in cash, amounting to around 20 billion shekels annually. Additionally, Palestinians who cross the Green Line to shop in Israel contribute an extra 6-7 billion shekels to the economy.
Despite this influx of cash, the Central Bank of Israel in Jerusalem limits the amount of shekels that can be deposited by West Bank creditors to just 18 billion shekels per year. As a result, large sums of money remain in local banks, creating a complex economic situation for both Palestinians and Israelis.
The impact of war on the economy in Israel
After the outbreak of war, Tel Aviv prohibited Palestinians from working on Israeli territory. However, the cash surplus remains because the uncertainty of the conflict forces people who previously kept cash in their homes to deposit it in banks. The worsening of living standards due to military actions forces many of them to spend less. The war fuels the informal economy, which largely relies on cash in circulation. The Israeli central bank explains that “quotas are set according to the situation.”
Challenges in Cross-Border Cash Deposits
In recent years, Israeli banks have stopped providing cash services to their Palestinian partners due to concerns about money laundering and terrorist financing. This has impacted economic activity in the region, as cash deposits are essential for many transactions.
Israeli central bankers have stated that quotas have been raised and in some cases, additional support has been provided. However, experts argue that the ceiling should be increased or removed altogether to facilitate smoother financial transactions.
Representatives from the International Monetary Fund have also expressed concerns about the limitations imposed on cash deposits, stating that the current limit is not conducive for economic growth and stability.
Financial Flows in the Palestinian Banking System
There is a focus on the flow of shekels into the banking system of Palestine. According to a diplomat, there is no evidence of money laundering through the West Bank that would require strict restrictions on additional amounts of shekels. The diplomat also states that they view the limit as an arbitrary restriction that the Israeli side firmly believes in and will not change.
An audit of the Palestinian banking system conducted this year by official representatives from the United States, the United Kingdom, and Sweden found that Palestinians have increased the ceiling on international payments.
The Impact of Cash Limits on Palestinian Creditors
Experts familiar with the issue argue that imposing restrictions on transfers is essential to prevent funding of terrorist activities. The most direct impact of cash limits on Palestinian creditors is that it deprives them of income. The IMF estimated in 2022 that holding additional cash in shekels reduces the profits of Palestinian banks by around 20%.
According to a Palestinian banker, the lost revenues for the sector have reached $500 million between 2012 and 2023, the majority of which has accumulated in recent years as interest rates have risen. The banker emphasizes that these restrictions have significantly hindered the financial growth of Palestinian banks.
The Challenge of Deposits in the Banking System
The banking system is currently facing a challenge where they are unable to deposit money in order to generate interest, nor can they lend it out as they only have physical cash. This means that they are unable to inject money into the economy and circulation to create added value.
This situation also decreases the liquidity of banks for transactions with Israeli partners and forces them to take “strange detours.” In some cases, they resort to short-term loans to cover transfers and checks, even though they have ten times more money in their vaults.
Bankers are also concerned about the increase in thefts due to this cash-heavy situation.
Bank Robberies on the Rise in the West Bank
NATO officials report that there have been eight armed bank robberies on the West Bank last year – double the total amount in 2022, and at least three since the beginning of 2024. However, industry representatives claim that the number is even higher. Some observers believe that the increase in thefts is due to poor law enforcement in the midst of accumulating cash. A UN envoy, on the other hand, points out that the problem is exacerbated by movement restrictions imposed by Israel following the October 7 attack, which make it difficult for banks to transport
Security Concerns Raised Over Cyber Attacks on Banks
A recent wave of cyber attacks has targeted banks worldwide, from less secure branches to more fortified vaults. While the financial impact of these attacks may not be significant from a banking perspective, the United Nations is worried that the breaches also raise concerns about security.
Western officials have issued warnings of a potential “catastrophe” if Israel cuts off services to Palestinian banks. However, diplomats currently see no possibility of raising the ceiling under more justified conditions, given the hostile attitude of Benjamin Netanyahu’s government, where the finance minister is involved.
The Role of Nationalist Bezalel Smotrich in Israeli-Palestinian Relations
From the beginning of the conflict, Bezalel Smotrich has played a crucial role in limiting the transfers of revenue that Israel has collected on behalf of the Palestinian Authority, which has limited self-governance in the West Bank. Smotrich has also threatened not to renew the vital exception for Israeli banks to provide correspondent banking services to their Palestinian counterparts. According to diplomats, these two issues could cause much larger immediate setbacks to the economy of the West Bank than the surplus from the?
The Issue of Shekel Overvaluation
Israel is currently facing a significant economic challenge due to the overvaluation of the shekel. This issue is not to be taken lightly, as it has fundamental economic implications that need to be addressed promptly.
