The Palestinian Monetary Authority is considering the issuance of a digital currency, which may at least give it some symbolic currency independence.
The Palestinian Monetary Authority is studying the possibility of issuing digital currencies, which will at least cause a symbolic blow to Israel’s currency independence.
According to the agreement with Israel in the 1990s, the Palestinians agreed not to create their own currency immediately. Their economy mainly uses Israeli shekels, Jordanian dinars, and U.S. dollars.
As Israeli law prohibits large cash transactions and aims to combat money laundering, Palestinian banks are currently flooded with shekels. Israel also limits the amount of shekels that Palestinian banks can remit back to Israel each month. As a result, they sometimes have to borrow money to pay third-party foreign exchange payments, and are trapped by large amounts of Israeli banknotes. This may be one reason why digital currencies are attractive to the Palestinian monetary system.
Two studies on cryptocurrencies are underway and no decision has been made yet, but we hope that the digital currency will eventually be used in “our country’s payment system, and hope to be used for actual payments with Israel and other countries”, Palestine Monetary Authority President Feras Milhem said in an interview with Bloomberg TV.
However, this may not be feasible.
The Palestinian economy is inherently fragile and is severely constrained by Israel’s restrictions on the free movement of goods and people. It relies heavily on donor funds and remittances from Israel.
Raja Khalidi, director of the Palestinian Institute of Economic Policy, said, “Macroeconomic conditions do not allow Palestinian currency-whether it is digital currency or other currencies-to exist as a means of exchange.”
However, he added that the issuance of a certain digital currency may “send a political signal that shows a clear manifestation of Israel’s monetary autonomy.”
As the reduced use of banknotes and coins has the potential to overturn traditional payment methods, the Palestinians are working with the Swedish and Chinese monetary authorities to study the potential of their country’s digital currency. The advent of cryptocurrencies such as Bitcoin has increased pressure on central banks to ensure that they have a viable alternative before unregulated forms of payment take over.
Barry Topf, a former senior adviser to the governor of the Bank of Israel, agrees that Palestinian digital currency is unlikely to become a real means of exchange. “It won’t take the kerr, dinars, or dollars. It will certainly not become a store of value or an accounting unit.”
At the same time, the credit crunch has caused losses to the Palestinian private sector. The European Investment Bank has pledged to provide US$425 million in loans. Millom hopes to provide these loans to small and medium-sized enterprises in the West Bank and Gaza Strip. Fearing that funds may eventually fall into the hands of the Hamas movement in Gaza, which is considered a terrorist organization by the United States and Israel, Millam said that all funds will be distributed by banks regulated by PMA.
“Our bank enforces very strict regulations,” he said. “They implement the’know your customer’ rule. In this case, we are not worried.”
– With the assistance of Alisa Odenheimer and Fadwa Hodali.