The Palestine Monetary Authority has raised alarms regarding the dire consequences of Israel's ongoing refusal to accept shekels from Palestinian banks, a situation that has escalated since the outbreak of conflict in the Gaza Strip last October. This accumulation of shekels, which has reached over 18 billion shekels (approximately 5 billion dollars) annually, poses significant challenges for the Palestinian banking sector, as banks struggle to manage an excess of Israeli currency that they cannot absorb.
The shekel serves as a primary currency in the Palestinian market, functioning alongside the US dollar and the Jordanian dinar as per the Paris Economic Protocol of 1994. The crisis stems from various factors, including trade payments, wages for Palestinian workers in Israel, and internal purchases from West Bank markets. As banks face an overwhelming amount of idle shekels, they incur costs for storage and insurance, ultimately impacting their financial health.
Despite previous coordination between the Palestine Monetary Authority and Israeli banks to manage surplus cash, the current situation has led to a backlog of shekels in Palestinian banks, forcing some to store cash in garbage bags due to overflowing coffers. This idle currency is a burden, increasing operational costs and reducing the effective value of the shekel for banks. With 13 local and foreign banks operating in the Palestinian market, the financial implications of this crisis are profound and far-reaching.
