US, European officials urge Israel to not sever West Bank from global financial system
Western officials sent a letter to the Israeli government, warning that Prime Minister Benjamin Netanyahu is risking an "economic catastrophe" in the occupied West Bank if it doesn't renew a waiver for international banks to maintain ties with Palestinian financial institutions.
The letter spearheaded by US Treasury Secretary Janet Yellen, expresses concerns that Israeli Finance Minister Bezalel Smotrich will not renew the waiver that is set to expire on Thursday, The Financial Times reported.
"The actions taken by some members of your government to deny the West Bank access to financial resources endangers Israel's security and threatens to further destabilise the entire region," a copy of the letter says.
The letter was also signed by seven of Yellen's counterparts, including officials from the European Union and the United Kingdom, according to the Financial Times.
The Palestinian economy is based on the Israeli currency, the shekel, making it reliant on ties to Israel, and its financial dealings with the rest of the world must go through the Bank of Israel and other Israeli banks.
New MEE newsletter: Jerusalem Dispatch
Sign up to get the latest insights and analysis on Israel-Palestine, alongside Turkey Unpacked and other MEE newsletters
Two Israeli banks, Israel Discount Bank and Bank Hapoalim, currently maintain the connections of Palestinian banks with the banking system in Israel and globally.
To protect them from lawsuits involving the Palestinian Authority and “transfering funds to terror groups”, the Israeli government has been issuing a waiver of protection for the two banks on an annual basis, signed by the finance minister.
Smotrich, who became finance minister in 2022, is refusing to renew the arrangement.
Without this protection, the PA would be stripped of immunity and Israeli banks would be exposed to lawsuits and likely cut ties to Palestinian banks.
The results of isolating the PA from the financial world would significantly paralyse the Palestinian economy.
"Such an economic catastrophe would threaten the integrity of the Palestinian Authority at a time when they are especially critical security partners," the letter said.
Roughly $13bn of trade between Israel and the occupied West Bank passes through the international financial system, according to the letter from Yellen and other finance ministers.
Palestinian workers, who can only receive their wages in a bank deposit according to a 2022 agreement between Palestinian and Israeli authorities, would not be able to continue receiving wages in Israel unless they were made in cash.
Other areas that would be affected by Smotrich’s move include Palestinian export and import operations, which go through Israeli ports, and Palestinian tax funds, which are collected by Israel.
According to The Financial Times, Smotrich and Israel's cabinet have demanded at least two conditions be met before renewing the waiver. The first is to have the global watchdog, the Financial Action Task Force, schedule an evaluation of the Palestine Monetary Authority, and the second is for the World Bank to assist with a national risk assessment of the Palestinian financial system.
People familiar with the matter told The Financial Times that the PA has completed the steps, and the letter states that the PA is "on track" to strengthen its anti-money laundering regime.
Middle East Eye delivers independent and unrivalled coverage and analysis of the Middle East, North Africa and beyond. To learn more about republishing this content and the associated fees, please fill out this form. More about MEE can be found here.
