According to The Financial Times, lenders in the PA are complaining about having too much cash.
The excess cash, exceeding $1 billion, is just one of many challenges facing the PA’s financial system, which is simultaneously dealing with the economic consequences of the Gaza war and Finance Minister Bezalel Smotrich’s restrictive policies. According to banking professionals and PA government officials, this idle money in their vaults isn’t merely reducing banks’ profits and making transactions more difficult—it’s also becoming increasingly attractive to criminals.
Financial institutions in the PA are increasingly concerned about a rise in criminal activity. According to an insider, armed bank robberies in the PA doubled last year, with eight incidents reported, compared to four in the previous year. At least three such robberies have already taken place this year, and some officials told the FT the actual number may be higher.
Some attribute the rise in heists to the growing cash reserves in the PA banks, while others point to inadequate law enforcement as a key factor. Also: movement restrictions implemented by Israel following October 7 have hindered banks’ ability to transfer cash from vulnerable branch locations to more secure facilities, further exacerbating the security challenges faced by financial institutions in the PA.
The problem is not going away any time soon and, in fact, those bankers and government officials predict their cash holdings will grow to $2 billion by the end of the year – all dressed up and no place to go.
“It’s a problem,” one PA official told the FT, warning that more than 15% of the PA’s economy will be stored in vaults. “It creates a lot of difficulties for our banks and for Palestinian traders doing business with Israel,” he said.
The surplus results from a longstanding restriction that Israel places on the amount of cash PA financial institutions can transfer to Israel’s central bank. PA banks use Israeli currency in accordance with economic agreements from the 1990s.
Before October 7, the primary influx of physical shekels into the PA came from PA Arabs working in Israel and receiving cash payments. According to an informed source, they brought in up to NIS 20 billion ($5.38 billion) annually. Additionally, Israelis shopping in the PA contributed another estimated NIS 7 billion ($1.88 billion). However, Israel’s central bank limits PA banks to sending only NIS 18 billion ($4.85 billion) per year. Over time, this has led to an increasing accumulation of physical shekels in the PA banks’ vaults.
Following the outbreak of hostilities, Israel barred PA Arab workers from entering its borders. Despite this, the cash surplus has continued, driven by two factors: the economic uncertainty prompted many PA Arabs to move their home-stored cash into bank accounts; and the war-induced economic slowdown led to reduced spending.
The Bank of Israel told the Financial Times that it was forced to step in after Israeli banks had stopped providing cash services to PA banks because of fears of money laundering and terror financing. When the central bank intervened, it “set quotas reflecting legitimate economic activity requiring cash deposits.”
The IMF said in 2022 that the limit set by Israel on PA banking did not match the shekel inflow into the PA banking system.
