Palestinian Currency Governor Warns of Imminent Economic Collapse Amid Israeli Banking Disconnect
Yahya Shinar, Governor of the Palestinian Monetary Authority, warned last week in Ramallah that the Palestinian economy is only weeks away from a total collapse. He attributed this looming crisis to Israeli banks' plans to sever their financial ties with Palestinian banks, a move that would isolate the Palestinian banking system from the global financial network. This disconnection threatens critical supply chains, risking shortages of fuel, energy, and basic foodstuffs, alongside rising prices, unemployment, and poverty.
The warning comes as Bank Hapoalim and Discount Bank have notified the Israeli Ministry of Finance and Palestinian banks of their intent to end correspondent banking services by October 1, 2026. These services have been essential since the 1994 Paris Protocol, which requires Palestinian banks to operate through Israeli banks for international transactions, allowing Israel to monitor funds to prevent money laundering and terror financing. However, Israeli banks face increasing legal risks, prompting them to reconsider their involvement despite temporary government indemnity arrangements.
The economic fallout is expected to exacerbate an already severe budget crisis caused by Israel withholding Palestinian tax revenues. International representatives, including officials from Jordan's central bank, the Arab Monetary Fund, the International Monetary Fund, and the United Nations, attended the Palestinian Monetary Authority's conference, emphasizing the urgent need for coordinated intervention to maintain the banking connection.
US Ambassador to Israel Mike Herzog previously cautioned that the collapse of the Palestinian economy could lead to heightened violence and despair, endangering both Palestinians and Israelis amid recent security escalations in the West Bank. Meanwhile, Palestinian banks are seeking alternatives, such as Bank of Palestine enabling transactions in Egyptian pounds, Emirati dirhams, and Turkish lira, to reduce dependence on the Israeli shekel.
The Israeli government has repeatedly extended the indemnity framework for Israeli banks, most recently until the end of 2026, but the issue remains unresolved. Finance Minister Bezalel Smotrich has threatened to cancel the indemnity, which would effectively halt the banking mediation and precipitate the collapse. The final resolution may fall to the next Israeli government following upcoming elections.
