The Palestinian banking system in the Israeli-occupied West Bank is experiencing an unprecedented liquidity crisis stemming from an accumulation of Israeli shekels that banks cannot effectively manage or process. Unlike typical monetary challenges characterized by cash shortages, West Bank banks are running out of physical storage space for currency notes and coins, disrupting routine financial operations across the territory.
The root cause lies in a policy dispute between the Bank of Israel and the Palestinian Monetary Authority. Israel maintains an annual cap of 18 billion shekels on the amount of physical currency it will accept back from the West Bank banking system. Palestinian officials contend this limit fails to account for economic growth in the territory and represents a mechanism of economic control. Banks in the West Bank now accumulate approximately 30 billion shekels annually, according to Palestinian economic advisors, creating a surplus that cannot be converted into electronic balances needed for payments, transfers and loans.
Cash flows into the territory from multiple sources. Palestinian workers employed in Israel and Israeli settlements receive wages in physical currency, while Israeli citizens purchasing goods in the West Bank bring additional shekels across the border. This inflow significantly exceeds the amount that can exit through Israel’s central bank, trapping funds within the Palestinian financial system. The surplus cash generates no interest and cannot be deployed for lending or investment, effectively sterilizing substantial banking assets.
The consequences ripple through the Palestinian economy. Commercial banks, forced to store excess currency at considerable expense, have reduced their acceptance of cash deposits from businesses and households. Companies cannot convert their earnings into electronic funds needed to pay suppliers, forcing some to take out loans or seek alternative currencies. Gas stations and other retailers have experienced operational disruptions, with some temporarily halting services due to inability to access banking functions. The Palestinian Authority has been unable to fully pay public sector employees for extended periods, partly because banks lack sufficient electronic funds when needed for critical imports including fuel, water and electricity from Israel.
Israeli officials cite security concerns regarding money laundering, tax evasion and terrorism financing in explaining the currency limits. A statement from the Bank of Israel noted that fewer Palestinians have worked in Israel since the conflict escalated in October 2023, reducing cash flow into the territory. Business leaders and Palestinian economists warn that without resolution, the cash crisis threatens to collapse multiple economic sectors and further constrain the territory’s already stressed public services.