Economy & Aid
Palestinian banks test which payments survive without an Israeli middleman
Graphic: Times of Palestine
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Two weeks before the first deadline, the question in Ramallah has narrowed from whether the shekel channel closes to what still works if it does.
Israel Discount Bank told its Palestinian counterparts in July that it intends to end correspondent services on 1 September. Bank Hapoalim has signalled 1 October. Both cited the risk they carry under Israeli terror-financing law without a durable indemnity, and both said so after the finance ministry extended the existing waiver only to the end of this year.
The scale is the reason the date matters. Reuters has put the traffic through the two Israeli banks at about 51 billion shekels a year, roughly 16.6 billion dollars, with some 90 percent of Palestinian trade passing through Israel.
What the Monetary Authority can and cannot do#
The Palestine Monetary Authority took its case to an international audience this summer, warning in a statement circulated abroad that severing correspondent relationships threatens the economy and daily life, and asking governments to act before what it called the breaking point.
Its central constraint is not competence but currency. The authority regulates banks, holds reserves and runs a national payment system, and it does not issue money. Under the Paris Protocol the shekel circulates, and clearing a shekel outside the Palestinian system requires an Israeli institution.
That is why the surplus problem is physical. Palestinian vaults hold banknotes the Bank of Israel has not absorbed — an accumulation Palestinian economic commentary this summer has put at roughly 18 billion shekels, about six billion dollars — cash that exists, is counted, and cannot be used to settle anything abroad.
The routes being examined, and where each one stops#
Palestinian banks maintain relationships with about 400 correspondent institutions worldwide, and the Jerusalem daily al-Quds has reported that regional and international intermediaries are being examined for trade finance, remittances and clearing. Those channels handle dollars and euros. None of them clears shekels.
The second route is the currency itself. The monetary authority and Palestinian economic bodies are studying a shift toward the Jordanian dinar, the dollar, the Egyptian pound and the dirham, and a gradual return to the dinar in commercial transactions as before 1987. Salaries, rents, school fees and supplier contracts are written in shekels; a currency change is a repricing of the whole economy, not a banking instruction.
The third is digital. The e-wallets — PalPay and JawwalPay — have grown fast: the Atlantic Council's Melanie Robbins recorded transactions rising from about 40 million dollars to 115 million in early 2025. They move money inside the territory. The shekel they move still needs the same Israeli clearing at the edge.
A wallet, a dinar account and a correspondent bank in Amman can all move money.
None of the three can settle a shekel without an Israeli bank standing in the middle.
Who feels it first#
The people who notice on day one are not traders. They are the importers of medicine and fuel, who pay Israeli and international suppliers in shekels; the aid organisations paying staff inside Gaza; the municipalities meeting payroll; and the students whose university fees cross a bank.
The Palestinian Authority is already paying partial salaries because Israel is withholding some six billion dollars in clearance revenue. The clearance freeze decides how much money exists. The correspondent question decides whether it can move.
No public source answers what happens on 2 September to a transfer already in flight, or how long banks can substitute cash and internal netting before trade finance stops. The Monetary Authority has not published a contingency schedule, and neither Israeli bank has said whether a further indemnity would reverse its notice.
What is settled is the sequence. Two commercial notices and one ministerial freeze, all decided on one side of the Green Line, are converging on the same autumn, and the institution that would have to absorb them cannot print the currency it is being cut off from.
