US concerned Smotrich may try to collapse Palestinian banking system — officials
Finance minister has until end of next month to sign waiver allowing Israeli banks to cooperate with Palestinian ones, without which PA economy would struggle to survive
The Biden administration is concerned that far-right Finance Minister Bezalel Smotrich will not sign a waiver allowing Israeli banks to conduct transactions with their Palestinian counterparts, risking the collapse of the Palestinian Authority, two US officials told The Times of Israel on Friday.
The current authorization known as the corresponding banking agreement is set to expire on October 31. Similar concerns were voiced in Washington over the summer when Smotrich threatened not to sign the waiver by the previous June 31 deadline.
After significant prodding from Washington and an apparent quid pro quo agreement that saw Prime Minister Benjamin Netanyahu’s government legalize five wildcat outposts in the West Bank, advance plans for thousands of new settlement homes and approve a series of punitive measures against the PA, Smotrich signed the waiver — but only for four months, instead of the customary one year.
Roughly three monthly later, the Biden administration finds itself in a similar predicament, the two US officials said, confirming a report by the Axios news site.
For its part, Jerusalem has told Washington that Smotrich will sign the waiver if the Palestinian Authority produces a risk assessment report regarding the Palestinian banking system and if an external review is also completed, showing that PA-regulated banks comply with international statutes regarding counter-terrorism and anti-money laundering, the US officials said.
The US Treasury Department already conducted a review of the Palestinian banking system earlier this year, which found that it meets those international standards, a US official said, adding that the Finance Ministry does not think it is sufficient.
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 53 billion shekels ($14 billion) were exchanged at Palestinian banks in 2023, according to official data.
Failure to maintain 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 an already-weakened PA to fight such groups, an official from one of the Group of Seven countries told official Axios.
The issue was raised by the US at a recent meeting of finance officials from G7 countries, as Washington apparently seeks to recruit international support in urging Israel to sign the waiver extending the corresponding banking agreement.
The G7 official told Axios that as the expiration date nears, Smotrich will devise “new demands that will have nothing to do with banking and a lot to do with expanding settlements” in the West Bank, adding that the G7 seeks “to make clear that such behavior doesn’t only endanger stability in the West Bank but also Israel’s security.”
The US has considered sanctioning Smotrich over his policies but has held off on the drastic step.
The minister’s office did not respond to the news site’s request for comment.
