Responding to UK-led sanctions, Smotrich cancels waiver allowing Israel-PA bank ties

Finance Minister Bezalel Smotrich has directed his office to cancel a critical agreement for sustaining the Palestinian economy in retaliation for the decision by five Western countries to sanction him and fellow far-right minister Itamar Ben Gvir.

Smotrich’s office says in a statement that he directed the Finance Ministry’s accountant-general, Yali Rotenberg, to waive the indemnity that Israeli banks have been given to correspond with Palestinian banks.

Smotrich earlier in the day reportedly pledged to collapse the PA in response to the sanctions, even though Ramallah was not known to have any involvement in the joint decision by the UK, Canada, Australia, New Zealand and Norway.

The Palestinian economy relies heavily on the banks’ relationships with their Israeli counterparts to process transactions made in shekels, as the PA does not have its own currency. Some NIS 53 billion ($14 billion) were exchanged at Palestinian banks in 2023, according to official data.

The overwhelming majority of exchanges in the West Bank are in shekels, Israel’s national currency, because the Palestinian Authority is prevented from having a central bank that would allow it to print its own currency.

The so-called corresponding banking agreement requires periodic extensions by Israel to remain in effect, and the Biden administration exhausted significant efforts in urging Israel not to allow its expiration. The administration warned that failing to maintain the banking relations between Israel and the Palestinians would turn the West Bank into a “cash economy,” which would benefit terrorist organizations in the territory and make it harder for the already-weakened PA to fight such groups.

The Israeli security establishment also pushed back against the move, and Smotrich ultimately agreed to grant a one-year extension to the banking deal last November.