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Israel's Smotrich threatens to stop dealing with Palestinian banks

Posted On: 23-05-2024 | Economy , Israeli news
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Jerusalem / PNN / 

In a punitive measure against the Palestinian Authority (PA) following several European countries' decision to recognize Palestinian statehood, Israel's far-right Finance Minister, Bezalel Smotrich, threatened to isolate Palestinian banks by not extending guarantees to Israeli banks that deal with them against potential litigations.

In addition to halting the transfer of Palestinian tax revenues to the PA, Smotrich said in a message he sent to Israeli Prime Minister, Benjamin Netanyahu, that he requested measures to be taken against the PA, stating: "We will not extend the cooperation agreements granted to Israeli banks that transfer money to banks in the West Bank."

The Israeli government grants immunity from prosecution for Bank Hapoalim and Bank Discount against allegations of financing terrorism. The two banks implement the relationship between Palestinian banks and the Israeli banking system, as well as financial transactions between Palestinian banks and countries of the world.

The Israeli Finance minister commits to protecting the two Israeli banks and compensating them for any penalties that could be imposed on them if claims are brought against them in other countries for dealing with Palestinian banks.

These guarantees are annually renewed for the two banks. They expired on March 31 and were renewed following a decision by Israel’s Ministerial Committee on National Security Affairs for three months until the end of June.

In his letter to Netanyahu, Smotrich stressed that he would not extend these guarantees when they expire on June 30th.

The decision to terminate the guarantees granted to the Israeli banks would cripple the Palestinian banking system and consequently the Palestinian economy. But at the same time, this step will also deal a crushing blow to Israel’s banks and economy.

Financial transactions between Palestinian and Israeli banks amount to billions of shekels monthly. This means that ceasing transactions with Palestinian banks would deal a severe blow to Israeli exporters.

The Israeli Shekel is the main circulating currency in Palestine as it currently has no domestic currency. Mainly three foreign currencies are used; Israeli shekels (ILS), United States dollars (USD), and Jordanian dinars (JOD).

Israel fears that if it ceases transactions with Palestinian banks it would limit the need for the Israeli Shekel in the Palestinian economy, prompting the Palestinian Authority to resort to dealing with another currency. This might even support its aspirations to issue a domestic currency.

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