Palestinian Monetary Authority Thinks of Digital Currency as a “Political Signal”

Palestinian Monetary Authority (PMA) Governor Feras Milhem has revealed that the proto-central bank – which does not issue domestic currency and operates under very restrictive political and economic conditions – is exploring the idea of ​​issuing a Palestinian digital currency.

Raja Khalidi, Director of the Economic Policy Research Institute for Palestine, he said Bloomberg that “macroeconomic conditions do not exist to allow the Palestinian currency – digital or otherwise – to exist as a medium of exchange.”

However, Khalidi argued that the issuance of some form of PMA digital currency could “send a political signal to show the apparent form of monetary autonomy from Israel.” Khalidi’s view was reiterated by Barry Topf, a former senior adviser to the governor of the Bank of Israel, who said that any Palestinian digital currency would “not replace a shekel, a dinar or a dollar.” Certainly it will not be a store of value or an entity. “

The Occupied Territories of the West Bank and Gaza may not appear to be the most appropriate place to introduce a centrally issued digital currency. The first was subjected to a fourteen-year blockade, which led to the collapse of its economy, was subjected to strict Israeli restrictions, and since 2008 four wars have continued.

It falls under the jurisdiction of the Palestinian Authority (PA), which has only limited – administrative but not military – administrative powers in less than 40% of the West Bank. PMA affiliation is different from the PA, extending into the Gaza and West Bank areas under full Israeli control.

Under the terms of the 1994 Paris Protocol, the PMA has powers similar to 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 Conversation with Bloomberg Television on June 24, Milhem stated that the PMA was now studying the issue of digital currencies in line with central banks around the world, but no decision had been made to proceed with the issue. 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.” In our market, we have excess Israeli money, which we have problems transferring to the Israeli side […] Our strategy is to use digital currency for payment systems in our country and hopefully […] used for cross-border payments. “

The shekel surplus in Palestinian banks is due to Israeli restrictions on large cash transactions that have been imposed with reference to anti-money laundering concerns. Israel is also limiting how many Palestinian banks are able to transfer back to Israel each month, which poses significant difficulties as the two economies overlap in large and complex ways.

At various times Israeli banks as well threatened suspend correspondence services to Palestinian banks. Due to the excess of shekels, Palestinian banks are sometimes forced to take out more loans to meet their foreign exchange obligations to third parties.

Israel is also belatedly administering Palestinian taxes released Revenue of $ 1.14 billion collected on behalf of PA in December 2020, following a seven-month political crisis surrounding Israel’s efforts to further illegal Western Bank annexation, which would be de jure and not only de facto, Now.

Related: The Palestinian Authority is considering replacing the Israeli shekel crypto

In this complex political, institutional and macroeconomic context, where the occupied territories are still heavily dependent on donations and Israeli remittances, and the economy strained by Israeli actions and the impact of the global pandemic, analysts noted that issuing digital currencies may be a matter of political symbolism rather than monetary pragmatism.

In 2019, Palestinian Prime Minister Mohammad Stajjeh Raif said that in an effort to better isolate the Palestinian economy from Israeli restrictions and political threats, he would consider using cryptocurrency as an alternative to shekel.

Then, as now, analysts argued that “the problem of the Palestinian economy is not the currency, but rather the complex economic and political dependence on Israel,” noting that another currency could not lift either import / export blocking or tax withholding. funds.

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