The banks' surprising move: will it lead to the establishment of an independent Palestinian currency?
The major banks in Israel surprised the Ministry of Finance and announced an early severance of financial ties with the Authority. The reason: fear of lawsuits over terror financing and a lack of backing from the state.
Bank Discount and Bank Hapoalim surprised the Ministry of Finance by announcing that they will sever banking ties with Palestinian banks as early as this coming September, four months earlier than planned. This unexpected announcement forces the state to find an emergency solution to prevent the collapse of the financial system in the Palestinian Authority.
The background to this dramatic step is the Israeli banks' deep fear of international legal risk. For years, Israeli banks have served as a "conduit" connecting Palestinian banks to the world. However, Palestinian banks refuse to undergo audits regarding money laundering and terror financing, which exposes Discount and Hapoalim to massive lawsuits abroad. To protect them, the state provides the banks with a legal safety net.
Currently, the banks fear that at the end of the year, Minister of Finance Bezalel Smotrich will refuse to extend this protection and leave them exposed. The economic system warns that severing ties will have severe consequences. Disconnecting the Authority from the banking system will not stop terrorism, but will instead push it toward a cash and crypto economy without any oversight.
In addition, this constitutes a violation of the Oslo Accords, which could lead the Authority to issue an independent currency — the first step on the path to international recognition of a Palestinian state. The Ministry of Finance is now trying to formulate a solution that will allow for the extension of banking ties into 2027.
