Israel’s ‘Economic War’ Chokes Occupied West Bank

Palestinians queue to withdraw money from an ATM in the main market in Ramallah city in the Israel-occupied West Bank on June 9, 2024.
Palestinians queue to withdraw money from an ATM in the main market in Ramallah city in the Israel-occupied West Bank on June 9, 2024.
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Israel’s ‘Economic War’ Chokes Occupied West Bank

Palestinians queue to withdraw money from an ATM in the main market in Ramallah city in the Israel-occupied West Bank on June 9, 2024.
Palestinians queue to withdraw money from an ATM in the main market in Ramallah city in the Israel-occupied West Bank on June 9, 2024.

Palestinian teenagers bounced on trampolines and jumped through hoops inside a towering tent on the outskirts of Ramallah, the financial hub of the occupied West Bank.

But the circus students weren't the only ones bending over backwards in the pavilion: the school's director faced financial hurdles to buy the tent from Europe and trampolines from Asia.

"We are suffering with international payments," said Mohamad Rabah, head of the Palestinian Circus School, describing a bureaucratic process that could delay equipment delivery by up to a month.

Banking in the Palestinian territories is challenging, with the Palestinian Authority (PA) under scrutiny for potential terror financing, hindering transactions.

Israel has occupied the West Bank since 1967, with strong economic ties allowing two Israeli lenders to serve as correspondent banks in the Palestinian territory.

But this may change if Israel's far-right Finance Minister Bezalel Smotrich carries out threats to sever a vital banking route next month.

Since Hamas's October 7 attack triggered the Gaza war, Israel has imposed economic curbs on the PA, withholding tax revenues it collects on its behalf.

Smotrich said this week he had redirected $35 million in PA tax revenues to families of "terrorism" victims, a move condemned by the United States.

After three European countries recognized Palestinian statehood in May, Smotrich told Prime Minister Benjamin Netanyahu he would not extend indemnity to banks that transfer the funds from the end of June.

Israel's Bank Hapoalim and Israel Discount Bank need protection, expiring on July 1, to avoid sanctions for dealing with Palestinian lenders.

Israel's central bank and finance ministry declined to comment when contacted by AFP.

A Palestinian fruit vendor arranges his street cart in the main market in Ramallah city in the Israel-occupied West Bank on June 9, 2024. (AFP)

- 'Humanitarian crisis' -

The banking channel used to pay for West Bank imports -- including essential goods like water, fuel and food -- handles $8 billion yearly.

Palestinian businesses receive nearly $1.7 billion annually for exports, according to the Palestine Monetary Authority.

"For us, because our economy is dependent on the Israeli economy, because Israel is controlling the border, the impact will be high," said PMA governor Feras Milhem.

The Palestinian economy is largely governed by the 1994 Paris Protocol, which granted sole control over the territories' borders to Israel, including the right to collect import duties and value-added tax for the PA.

Palestinian livelihoods have also been hurt by bans on laborers crossing into Israel and by a sharp downturn in tourism in the territory, including a quiet Christmas season in Bethlehem.

The United States has urged Israel to improve conditions, warning that severing the banking route would have a dire impact on the West Bank economy.

"I believe it would create a humanitarian crisis in due course if Palestinian banks are cut off from Israeli correspondence," US Treasury Secretary Janet Yellen said last month.

Western governments fear Israel's economic policies could destabilize the West Bank.

"The banking system may collapse and therefore the PA may collapse as well," a European diplomatic source in Jerusalem told AFP on condition of anonymity.

"The PA is in a financial crisis and it could collapse before August."

A Palestinian vendor unloads his stock in front of a shop in the main market in Ramallah city in the Israel-occupied West Bank on June 9, 2024. (AFP)

- Digital currency -

Palestinian businessmen say their bottom lines have been hit since October 7.

Imad Rabah, who owns a plastics company, said his net income had fallen 50 percent in one year.

Musa Shamieh, who owns a womenswear company said the Israeli policies were designed to push Palestinians to leave the West Bank.

"They want us to leave our land and they know it will be hard for us to stay if we can't do business," Shamieh said.

Israel's harsh economic policies could eventually drive Palestinian policymakers to pursue sweeping changes to the monetary system.

"We need to work on a plan B when it comes to the trade relations," said Milhem, governor of the PMA, which uses an image of the former Palestinian pound as its logo.

Yousef Daoud, professor at the West Bank's Birzeit University, said the territory could scrap the shekel as its de facto currency in favor of a digital alternative.

"We can make our e-currency, just collect all the shekels, issue an equivalent amount of Palestinian pounds, one-to-one fixed exchange rate, and have the Palestinians deal with e-currency," he said.

"Somehow, eventually, we'll get rid of the shekel."



Dollar Resumes Upward Trend, Euro Hits Lowest since Nov 2022

US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
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Dollar Resumes Upward Trend, Euro Hits Lowest since Nov 2022

US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
US Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

The dollar hit new multi-month highs against the euro and the pound on Thursday, the first day of 2025 trading, as it built on last year's strong gains on expectations US interest rates will remain high relative to peers.

The euro fell to as low as $1.0314, its lowest since November 2022, down around 0.3% on the day. It is now down nearly 8% since its late September highs above $1.12, one major victim of the dollar's recent surge.

Traders anticipate deep interest rate cuts from the European Central Bank in 2025, with markets pricing in at least four 25 basis point cuts, while not being certain of even two such moves from the US Federal Reserve, Reuters reported.

The dollar was hitting milestones across the board and the pound was last down 0.65% at $1.2443, its lowest since April, with its fall accelerating after it broke through resistance around $1.2475.

"It's more of the same at the start of the new calendar year with the dollar continuing to extend its advances in anticipation of Trump putting in place friendly policies at the start of his term," said Lee Hardman, senior currency analyst at MUFG.

US President-elect Donald Trump's policies are widely expected to not only boost growth but also add to upward price pressure. That will lead to a Fed cautious about cutting rates too much further, in turn underpinning US Treasury yields and boost dollar demand.

A weaker growth outlook outside the US, conflict in the Middle East and the Russia-Ukraine war have also added to demand for the dollar.

The dollar also reversed an early loss on Thursday to climb against the Japanese yen, and was last up 0.17% at 157.26.

It reached a five-month high above 158 yen in late December, potentially putting pressure on the Bank of Japan, which is expected to raise interest rates early this year, but possibly not immediately.

"If dollar/yen were to break above 160 ahead of the next BOJ meeting, that could be a catalyst for the BOJ to hike in January rather than wait until March," said Hardman.

"Though for now markets are leaning towards March after the dovish comments from (governor Kazuo) Ueda at his last press conference."

Even those who are more cautious about sustained dollar strength think it could take a long time to play out.

"The dollar may be vulnerable – but only if the US data confound market expectations that the Fed doesn’t cut rates more than once in the first half of this year, and not by more than 50bp in the whole of 2025," said Kit Juckes chief FX strategist at Societe Generale in a note.

"There's a good chance of that happening, but it seems very unlikely that cracks in US growth will appear early in the year – hence my preference for taking any bearish dollar thoughts with me into hibernation until the weather improves."

China's yuan languished at 14-month lows as worries about the health of the world's second-biggest economy, the prospect of US import tariffs from the Trump administration and sliding local yields weighed on investor sentiment.

Elsewhere, the Swiss franc, another victim of the recent dollar strength, gave back early gains to last trade flat at 0.90755 per dollar.

The Australian and New Zealand dollars, however, managed to break away from two-year lows touched on Tuesday. The Aussie was 0.36% higher at $0.6215 having dropped 9% in 2024, its weakest yearly performance since 2018.

The kiwi rose 0.47% to $0.5614.