In April 2017, Palestinian President Mahmoud Abbas announced that he was severing ties between the West Bank territory under his control and the Gaza Strip, which Hamas controlled. Now, senior Palestinian Authority (PA) officials have told Al-Monitor that Abbas is preparing to disengage from Israel. The first indication of his intentions became evident in a Feb. 6 PA announcement that it has tasked a committee with formulating operational plans for severing ties with Israel in various spheres, including replacing the Israeli shekel with another currency.
The economic sphere is, indeed, crucial to the continued rule of the PA and even more so to the lives of the Palestinians in the West Bank. Under the 1993 Israeli-Palestinian Oslo Accords and the 1995 Cairo Agreement, the Palestinian economy is inexorably linked with the Israeli economy in virtually every respect: currency, infrastructure, land and air passage, employment of Palestinian laborers in Israel and more. Israel also imposes value added tax and customs tariffs on goods for the PA arriving through Israeli ports and transfers the funds to the Palestinians. These taxes come to hundreds of millions of dollars annually, and Israel uses their transfer on occasion to exert pressure on the PA or to punish it.
The Feb. 6 announcement said that an option is being examined to issue an independent Palestinian currency or to use some other currency in place of the shekel. In the past, trade on the West Bank was primarily conducted using the Jordanian dinar, which was considered a strong and stable currency. The economic crisis in the neighboring Hashemite kingdom in recent years has led, however, to a decline of the dinar and the widespread use of the shekel, including for paying PA employees' salaries in the West Bank and Gaza.
The panel set up to examine the currency issue is unlikely to recommend a shift from the stable Israeli shekel to the Jordanian currency given the vicissitudes of the kingdom’s economy and its need for foreign aid. The PA would encounter additional insurmountable challenges given that the World Bank would be unlikely to approve such a request since the PA is not a sovereign state.
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