The shekel is in the hands of others... and the readiness is in ours

author

D. Said Sabry

According to the Palestinian census report issued in September 2025, about 64% of Palestine’s imports come from Israel, and about 90% of its exports go to it or through it. A large share of these transactions take place within a financial system in which the Palestinian economy depends on the shekel, a currency that we do not issue and whose monetary policy we do not control. Therefore, when the Israeli Prime Minister talks about the risks of possible financial sanctions and ways to deal with them, the discussion is not a purely Israeli matter for us. Our prices, banks and cash flows may be affected, even if we are not a party to the decision.

What was said...and what was not said

In a television interview on October 23, the Israeli Prime Minister expressed his concern about possible banking sanctions, and spoke about an economy that would bypass them through digital currencies and technologies such as “Blockchain,” in the context of an international movement on settlement led by Britain with the participation of 12 countries. The next day, he described it as “a means, not the only one,” and said that it was “not certain” that it would be used. As for the Bank of Israel, it announced that cryptocurrencies “cannot constitute a path to circumvent sanctions.”

A distinction must be made between a political statement, potential banking sanctions that have not been approved, and effective measures related to settlements. Also, “Blockchain” is not synonymous with cryptocurrencies, nor is it a ready technical solution to bypass banks’ restrictions. The published reports did not link this talk to the Palestinian economy. What I am trying here is to draw a map of exposure, not to predict what will happen. The waving may remain a waving.

The first channel: the shekel itself

Israeli economists have reportedly warned of the possibility of a decline in the shekel and a rise in inflation if Israel's relationship with the global financial system becomes more complicated. These are expectations, not actual losses. The impact on us is not the same. The decrease in the shekel raises the cost of goods priced in dollars or euros when converted to shekels. As for local goods and imported from Israel, their effects differ according to their pricing mechanism, as well as debts and deposits according to their currency. The final impact depends on the structure of deposits and loans by currency, data that should be published as part of stress tests so that we know who wins and who loses.

Here is a paradox worth noting: we do not issue the currency on which we depend, but we bear a large part of its risks without controlling its policy. If the shekel shakes for reasons that have nothing to do with us, the shock will be transmitted to families and banks. The Monetary Authority does not issue the shekel and does not determine its basic interest rate, although it has regulatory and supervisory tools by which it manages part of the risks. Its decrease does not mean that all prices will rise in the same proportion, as the effect varies according to the import and pricing currency, suppliers’ margins, and the companies’ ability to transfer the increase to the consumer.

The second channel: paper cash

The accumulation of paper money highlighted our weaknesses. A Palestinian economic official estimated the surplus in July at about 17 billion shekels, and an official source at the Monetary Authority reported in August that Israel had agreed to transfer 4.5 billion of it. As previously announced, the annual limit for transferring paper cash accepted by Israel is about 18 billion, while banks need about 28 billion. Waving does not change the size of the surplus, but it may increase uncertainty about the speed of these decisions in a period of elections and external pressures. Every delay has a cost: guarding, insurance, and transporting cash that does not generate a return.

Here is the crux of the problem, and it can be summed up like this: We may have a surplus of banknotes, but we suffer from a lack of ability to use them outside the confines of the domestic banking system. The accumulated cash is used domestically, but it alone does not pay an electricity bill or finance an import shipment, unless it is converted into balances usable for cross-border payments. Hence, the cash channel and the banking channel become two sides of the same problem.

The third channel: banking correspondence

The most important artery is banking correspondence. On September 2, a senior official at the Bank of Israel announced the extension of the services of Hapoalim and Discount Banks to Palestinian banks until the end of 2026, which they provide under guarantee exemptions signed by the Israeli Minister of Finance and renewed every six months. Without the continuation of these services, Palestinian banks will face severe disruption in settling payments in shekels with the Israeli side, which may affect trade and basic services. The service, as previously announced, covers the settlement of electricity, water, fuel, and food imported from Israel, the wages of Palestinian workers inside it, and the settlement of foreign trade. The same official said that the new government must determine who will bear the burden of these services after 2026.

The cost of any interruption becomes clear if we remember that Israel provides us with about 85% of electricity and 35% of water, and that paying for it is among what this service covers. The importance of preparation increases with the approach of two successive elections: the Israeli elections scheduled for today, Tuesday, October 27, 2026, and the end of the current banking correspondence arrangements at the end of the year. There is a short period between the two dates that requires early preparation, especially since the future of these services will remain linked to governmental and regulatory decisions that Palestinian institutions do not have control over.

I cannot be certain that potential sanctions on Israeli banks will make them less willing to bear the risks of Palestinian accounts, but it is a logical possibility: whoever is busy reducing their exposure will recalculate every high-risk relationship.

What is required: a continuity plan for payments

It is not enough to announce general scenarios. What is required is a continuity plan for Palestinian payments in emergency situations, with three operational elements: a responsible coordination body, a prior arrangement for the vital payments that are protected first (fuel, electricity, medicine, and food), with a clear distribution of responsibilities between the Monetary Authority, the Ministry of Finance, banks, and importers, and a permanent communication mechanism with banks, importers, and international partners for emergency liquidity arrangements. In addition to publishing overall indicators of stress tests, while protecting sensitive banking information.

A distinction must be made here: local electronic payment reduces dependence on banknotes, but it does not replace international correspondence channels. Partial alternative correspondence channels in dollars and euros for foreign trade are therefore also required as much as possible. The plan is not complete without an operational test that simulates the disruption of banking correspondence for several days, to determine which payments can be continued, which alternatives are actually available, and which gaps need prior arrangements with international partners. The first step could begin by forming a joint technical team led by the Monetary Authority, in coordination with the Ministry of Finance, the banking sector, and the authorities concerned with basic services, to develop a clear emergency protocol within a specific period of time.

a summary

The Israeli threat to digital currencies may remain just a suggestion, or it may not remain. But an economy that does not issue its currency does not have the luxury of waiting for what others decide. Building financial resilience does not start the day banking goes out, but before that, when we have a proven operational plan, defined responsibilities, and clear arrangements for continuing vital payments. What is required is not to ensure that the shock does not occur, but rather to ensure that it does not surprise us without preparation. If the messaging channel is down for a week, who will ensure that basic payments continue to be settled, and by what mechanism?