The Palestinian Monetary Authority is considering issuing a digital currency to facilitate Israel’s monetary independence.
Under agreements signed with Israel in the 1990s, the Palestinians agreed not to immediately create their own currency. Due, Its economy depends mainly on the Israeli shekel, the Jordanian dinar and the US dollar.
Palestinian banks currently have a surplus of shekels. One reason is due to an Israeli law that prohibits large cash transactions, due to AML regulations.
Additionally, Israel limits the amount of shekels that Palestinian banks can transfer to Israel on a monthly basis.
Because of this, Palestinian banks sometimes have to borrow to cover foreign exchange payments to third parties, leaving them with a surplus of Israeli banknotes. Issuing a digital currency could potentially disrupt this inefficient arrangement.
A Palestinian CBDC
A couple of studies on cryptocurrencies are currently underway, although a decision has yet to be made.
The governor of the Palestinian Monetary Authority, Feras Milhem, hopes to eventually use the digital currency although, if this is possible, it is questionable:
For the payment systems in our country and, hopefully, with Israel and others to use it in real payments ”.
Because the Palestinian economy suffers from Israeli restrictions on the free flow of goods and people, it is inherently weak.
In addition to relying on donor money and remittances from Israel, the economy contracted 11.5%.
According to the World Bank, this is likely due to the COVID-19 pandemic, which it was compounded by the Palestinian Authority’s refusal to receive taxes collected by Israel on its behalf.
A 20% drop in aid also contributed to a tax gap of more than $ 1 billion.
According to Raja Khalidi, director of the Palestinian Economic Policy Research Institute:
“The macroeconomic conditions do not exist to allow a Palestinian currency, digital or otherwise, to exist as a medium of exchange.”
However, the issuance of a digital currency could act as a political symbol of Israel’s monetary autonomy.
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Opinions on CBDCs
With the pair of studies analyzed, Palestine joins other nations of the world in developing central bank digital currencies (CBDC).
The Bank for International Settlements (BIS) has been working with several of the leading central banks to develop a standard for CBDCs.
Similarly to Palestine issuing a CBDC to oppose Israel, The BIS recently said that central banks must issue CBDCs to oppose cryptocurrencies.
The BIS warned that if central banks do not issue CBDC they could lose control of the money supply to private issuers and Big Tech companies.
The post Palestine considers issuing a CBDC in response to the conflict with Israel was first seen on BeInCrypto.