‘Economic warfare?’ In the West Bank, too much cash is breaking the Palestinian economy

RAMALLAH, West Bank, A growing pile of Israeli shekels in Palestinian banks is creating a crisis that threatens to stifle economic activity in the West Bank. Cash, once a reliable medium of exchange, is becoming a burden rather than a benefit. Businesses struggle to deposit large sums, and individuals find themselves unable to complete routine transactions. The situation reflects a deeper conflict between the Bank of Israel and the Palestinian Monetary Authority, with implications that extend beyond the region. The problem began when the Bank of Israel imposed a cap on the amount of cash it would accept from the West Bank. This limit, set at 18 billion shekels annually, was intended to curb illicit activities such as money laundering and tax evasion. However, the volume of cash flowing into the West Bank has far exceeded this threshold. Estimates suggest that Palestinian banks hold approximately 30 billion shekels each year, leading to a backlog that disrupts normal operations. This accumulation of cash has created logistical challenges. Commercial banks lack sufficient storage capacity to house the vast quantities of notes and coins. As a result, they are unable to convert the cash into electronic balances necessary for processing payments, settling debts, or facilitating business transactions. This inability to manage the surplus has left many businesses and individuals struggling to access funds, further exacerbating the economic strain. Mohammad Manasra, deputy governor of the Palestinian Monetary Authority, described the situation as a form of economic warfare. He argued that the restrictions imposed by the Bank of Israel are deliberately designed to weaken the Palestinian economy. According to Manasra, these measures contribute to the broader goal of maintaining the territory in a state of economic hardship, limiting its potential for self-sufficiency and stability. The flow of cash into the West Bank is driven by several factors. Israeli employers continue to pay Palestinian workers in cash, particularly in the West Bank settlements. Additionally, Arab citizens of Israel frequently make purchases in the West Bank, contributing to the influx of shekels. These transactions, while seemingly routine, have resulted in a steady stream of unaccounted-for cash that accumulates within the Palestinian banking system. Economist Moayad Afaneh noted that the reliance on physical currency is a structural issue. Unlike other economies that rely on digital systems for transaction processing, the West Bank’s financial infrastructure remains heavily dependent on cash. This dependency makes it difficult to adapt to the constraints imposed by the Bank of Israel’s policies. The impact of the cash surplus is evident in everyday life. At gas stations, cashiers refuse to accept large denominations, citing the inability of the bank to handle such volumes. Individuals face difficulties withdrawing money from ATMs, and businesses encounter delays in receiving payments from customers. The situation has led to frustration among both consumers and merchants, highlighting the urgent need for a resolution. The political dimension of the issue adds complexity. Finance Minister Bezalel Smotrich has previously expressed opposition to the establishment of a Palestinian state, advocating instead for measures that could undermine the authority’s legitimacy. His statements reflect a broader ideological stance that views the Palestinian economy as a target for strategic pressure. As the situation continues to evolve, the challenge lies in finding a sustainable solution that addresses both the immediate operational issues facing the banking sector and the underlying political tensions. Without meaningful reform, the economic instability in the West Bank is likely to persist, affecting the livelihoods of millions.