The Palestinian Monetary Authority is researching the possibility of issuance of its own digital currency, which would provide a symbolic move to monetary independence from Israel. PMA plans to use European funds to boost the private sector, but experts are skeptical about this new adventure.
This step would include Palestine on the list of other countries, such as El Salvador, Venezuela, the Marshall Islands, the Bahamas, China, who are interested in the power of the blockchain to improve the efficiency of their economy and gain more independence from other economic powers, bypassing their financial sanctions.
According to the 1990s agreements PMA with Israel, the Palestinians do not have their own currency. Instead, their economy relies on a mixture of the Israeli shekel, the Jordanian dinar, and the U.S. dollar.
With an economy controlled by a third party, it is almost impossible for Palestine to have any financial sovereignty over Israeli bank dictate. According to Bloomberg, Israeli law prohibits banks from conducting large cash transactions and imposes limits on the amount of money Palestinians can transfer to Israel each month.
As a result, the Palestinians sometimes have to borrow to cover foreign exchange payments to third parties and are stuck with a surplus of Israeli banknotes. That could be one of the main practical reasons a digital currency would be attractive to the Palestinian monetary system.
In an interview with Bloomberg TV, Palestinian Monetary Authority Governor Feras Milhem showed hope is to eventually use digital currency “for payment systems in our country and hopefully with Israel and others to use for actual payments.”
Two studies on cryptocurrencies already underway, but no decision has been made yet.
However, experts are not so optimistic. Among them is Raja Khalidi, director of the Palestine Economic Policy Research Institute, who believes that it is practically impossible for the Palestinian cryptocurrency to appear.
“The macroeconomic conditions don’t exist to allow a Palestinian currency, digital or otherwise, to exist as a means of exchange,” he says.
The Palestinian economy is inherently weak, constrained by Israeli regulations the free flow of goods and people. It heavily depends on donor money and remittances from Israel. As the World Bank reported in February, it contracted about 11.5% last year, including the Covid-19 pandemic impact.
Although Khalidi added, the issuance of some kind of digital money could “send a political signal to show the apparent appearance of monetary autonomy from Israel.”
As well, Barry Topf, a former senior adviser to the Bank of Israel governor, assured that this currency will fail to fulfill two of the main functions of money:
“It’s not going to replace the Shekel or the Dinar or the US dollar. It’s certainly not going to be a store of value or a unit of accounting.”
Despite this, Palestinians seem determined to join monetary authorities from Sweden to China in studying the potential of national digital currencies (CBDCs). Eventually, much of their success will depend on the support they receive from other international bodies and countries. The matter of discussion now relies on politicians, not crypto enthusiasts.