Key facts
- Palestinian banks in the West Bank are facing a severe liquidity crisis due to an excess of Israeli shekels.
- Israel's Bank of Israel has imposed limits on the amount of physical currency it accepts from the West Bank.
- This restriction prevents Palestinian banks from converting excess cash into electronic balances, hindering transactions.
- The surplus cash accumulates because more shekels enter the West Bank than Israel allows out, partly due to cash payments to Palestinian laborers.
- The situation impacts the ability of businesses and the Palestinian Authority to make payments for essential imports like fuel and electricity.
- Economists estimate Palestinian banks' profits are significantly reduced due to the inability to lend excess cash.
Palestinian banks in the Israeli-occupied West Bank are grappling with an unprecedented surplus of Israeli shekels, a situation exacerbated by Israeli restrictions on currency repatriation. This excess liquidity is disrupting daily economic activities, from gas station transactions to essential imports.
The core of the problem lies in the Bank of Israel's cap on the amount of physical currency it will accept from Palestinian banks. While most central banks facilitate the return of cash from commercial banks, the Bank of Israel's policy, which Palestinian officials label as 'economic warfare,' is preventing Palestinian banks from offloading excess shekels. This leads to banks having insufficient vault space and being unable to convert the physical currency into electronic balances needed for payments and transfers.
The influx of shekels is partly driven by Israeli employers paying Palestinian laborers in cash and by Palestinian citizens of Israel purchasing goods in the West Bank. With more cash entering than can exit, the surplus accumulates in Palestinian banks, earning no interest and remaining unavailable for lending, investments, or bill payments. This situation directly impacts the Palestinian Authority and the private sector's ability to fund essential services, including imports of fuel and electricity from Israel.
Economists estimate that this cash surplus has reduced Palestinian banks' profits by approximately 20%, a figure likely higher today. The problem has been compounded by fears of looting during Israeli raids, leading residents to deposit more cash into banks, further increasing the liquidity challenge. Recent Israeli measures, including revoking work permits and withholding tax revenues, have further strained the West Bank's economy.