March 16, 2026 • 1:56 pm ET
Bottom lines up front
- Any credible reconstruction plan for Gaza has to account for how households and businesses pay for daily necessities.
- Palestinians are dependent on Israeli banks for cash and access to the financial system, and Jerusalem has floated the possibility of cutting off that access.
- This means aid organizations may not be able to pay their local staff and, combined with stringent new Israeli regulations on humanitarian organizations, risks further reductions in aid.
Financial agency for Palestinians is the missing piece in most proposed plans to rebuild Gaza after the destruction of the post-October 7 war. Gaza has historically been a primarily cash-based society and economy, but under the current financial system, Palestinians in Gaza and the West Bank are dependent on Israeli banks for cash and access to the global financial system. Today, inside Gaza, civilians navigate collapsing markets, shrinking access to goods and services, and an economy increasingly mediated by whoever controls distribution and cash. In the West Bank, fiat currency surpluses have caused alarm and chaos. This all continues while reconstruction proposals, ceasefire sequencing, security arrangements, and donor pledges are discussed at the highest political echelons, without meaningful Palestinian representation.
Economic exclusion is known to fuel instability. More political rhetoric cannot resolve it. Just as employment needs to be central to Gaza’s security strategy, Palestinians need access to reliable, dependable, and readily available monetary systems. The absence of jobs and ready access to methods of payment to buy daily necessities leaves a vacuum that will continue to be filled by patronage networks run by Hamas or other armed actors.
Because the West Bank and Gaza Strip are not a country, their financial institutions don’t issue currency. Transactions within the Palestinian territories occur in the new Israeli shekel (NIS). Palestinian banks thus depend on corresponding Israeli banks to clear their transactions. The Israeli government has passed laws designed to prevent the financing of designated terrorist organizations, such as Hamas, so those Israeli banks need a waiver from the government to do business with the Palestinian banks. This gives the Israeli government significant leverage over money and how the flow of value and exchange is controlled.
Under these circumstances, there will always be new recruits for armed struggle. This is why the mechanics of exchange—the microeconomics of daily life, including the ability of ordinary Palestinians to receive, hold, move, and spend money safely—are central to any path forward for Gaza and the Palestinian national project.
A systemic choke point
Today, the Palestinian economy stands on the brink of systemic financial collapse. For over a year, Palestinian banks and the Palestine Monetary Authority (PMA) have raised the alarm. Palestinians in both occupied territories (Gaza and the West Bank) have access to banking services that depend on Israeli banks providing correspondent banking relationships, and that relationship is at a breaking point.
All Palestinian shekel settlements, shekel cash repatriation, and a large share of trade-related payments rely on two Israeli banks, Bank Hapoalim and Israel Discount Bank. These correspondent banks operate under an indemnity waiver issued by Israel’s Ministry of Finance. The indemnity waivers shield the banks from legal or regulatory exposure when processing Palestinian-linked transactions (including transactions for the Palestinian Authority). These relationships allow Palestinian banks to clear shekel transactions, repatriate excess cash, process trade-related payments, and maintain access to international transfers and cross-border payments through SWIFT messaging and international bank account number codes—the core financial tools for international transfers between banks.
Cumulatively, this reliance on Israeli indemnity waivers for correspondent banking, dependence on Israeli central bank decision-making, and Palestinian’s inability to manage their own financial sector has resulted in the current absurd state of affairs for the Palestinian economy: West Bank banks hold a growing number of physical shekels while their digital balances in Israeli correspondent accounts are depleted—threatening trade settlement and clearance payments—while there is also insufficient cash in Gaza for everyday transactions.
As early as 2024, Israeli banks were raising various concerns about the future of the indemnity waivers. Throughout 2024, the United States and others urged the Israelis to maintain the indemnity. However, by mid-2025, Israel’s finance minister, the right-wing politician Bezalel Smotrich, ordered the cancellation of the waivers, though they were later temporarily extended amid quiet diplomatic pressure.
The most recent renewal of this temporary status was for two weeks and was last issued on February 12. Smotrich meanwhile had been arguing that the entirety of the Palestinian banking system rides on the profit of the Palestinian Authority’s reported practice of issuing payments to Palestinians convicted of terrorist offenses and to the families of those killed carrying out terrorist attacks (often called its “pay for slay” policy in Israeli politics). Despite Finance Ministry demands, the Bank of Palestine did not agree to de-bank the Palestinian Authority, even as its Israeli correspondent bank was only two weeks away from being forced to cease its correspondent banking operations due to the expiring indemnity coverage.
How we got here
The Israeli banks providing services to the Palestinian economy, either directly to the Palestinian banking industry or to Jordanian banks operating in the Palestinian market, are the only linkage to the traditional international banking and fiat currency systems.
To understand the scale of the Palestinian banking industry today, however, consider that in 2023, Palestinian banks reported processing approximately NIS fifty-three billion through Israeli banking channels. Clearance dependence means that all remittance or donation transfers, as well as the ability of millions of Palestinians to access savings held in Palestinian banks, rely on the renewal of these indemnity waivers, underscoring one of the many reasons that Palestinians need to be able to transact with the international banking system, and have equitable access to its fiat currency, for the territories’ future stability.
Palestinians’ structural dependency on the shekel was established under the 1994 Paris Protocol on Economic Relations, which designated NIS as the central medium of exchange. That agreement established the Palestine Monetary Authority to perform central-bank-like functions, though without control of the issuance or settlement of currency. The Paris Protocol also established the Palestinian-Israeli Joint Economic Committee as a mechanism to oversee implementation of the agreement; however, the last meeting on record was in September 2009, according to EU records, meaning the structure has been effectively dormant for more than sixteen years.
In Gaza, major humanitarian organizations rely on Palestinian banking channels to distribute digital cash assistance and pay operational expenses. Cash scarcity and disrupted physical aid routes have increased reliance on digital transfers, a model that has also proven more transparent and auditable than any other aid model over the years since October 7, 2023.
The humanitarian and financial crises are linked
The weakening of the already fragile banking system continues to unfold in parallel with a significant expected reduction in humanitarian aid and access. Recent reporting indicates that Israel has imposed new registration requirements to continue operating in Gaza on dozens of international nongovernmental organizations, including the requirement to disclose more information about NGO staff. Several prominent organizations have refused, including Médecins Sans Frontières (Doctors Without Borders), Norwegian Refugee Council, Oxfam, and others, which initially raised the threat of these major aid organizations being fully denied access to Gaza and the West Bank by the end of February. The Israeli Supreme Court’s temporary injunction delayed implementation of the new rules, pending its hearing and ruling.
The indemnity waiver also allows aid organizations to pay their local staff; therefore, an end to indemnity waivers would collapse aid organizations’ capacities, hobbling the broader Palestinian economy. Such a scenario would be absolutely devastating and have lasting, disastrous consequences for the Gaza Strip, the Palestinian economy, and especially the people it would impact directly.
As the US-assembled Board of Peace raises its own $10 billion without clarifying where it will be directed to, and is applauded in Washington, the entire Palestinian economy faces the potential of restricted access to the international financial sector. Gaza, especially, faces the prospect that even the minimal aid that was and is being delivered, including medical care, is set to cease, with no clear plan to replace it.
Today, the Israeli government effectively has executive authority, especially through the Finance Ministry led by Smotrich, over whether to bank the West Bank and Gaza. Furthermore, the ministry oversees access to Palestinian tax income sources; since 2019, the ministry has continued to withhold billions of shekels in tax revenues from the Palestinian Authority.
The question for policymakers is whether Israel would allow Smotrich to leverage this power in a move that, given its wide-ranging implications, would inevitably further destabilize the region.
Digital wallet growth is a sign of resilience
Over the past year, digital wallet adoption has expanded significantly, with platforms such as PalPay and JawwalPay now functioning as core transaction methods, amid a shortage of physical cash. The United Nations Development Programme (UNDP), RedRose, and others have partnerships with digital wallet providers, which have strengthened this digital financial solution in response to the liquidity crisis and decreasing access to physical aid. Still, the majority of these wallets are tied to banking systems for account settlement, and PMA data indicate that cash withdrawals still dominate wallet transactions, underscoring the crucial role of physical cash, even with digital wallet adoption at scale. A recent report, however, provides evidence that many recipients in Gaza have been able to retain their assistance in digital form and transact for their needs accordingly.
This has been a year of market transition toward digital transactions and the active use of e-cash via digital wallet platforms. The Palestinian system has now had substantial adoption. In 2023, it began with about 684,000 active Palestinian e-wallets holding over $32.3 million, including almost 18,000 affiliated merchants, 4,100 authorized agents, and 2.15 million transactions completed. By 2025, reports show wallet usage nearly tripling over the first six months of the year, from processing $40 million to $115 million, and nearly 800,000 active wallets. The PMA’s own digital payment system in 2025 reportedly saw 2.8 million transactions exceeding $550 million.
The recent announcement by the Board of Peace of an initiative to introduce a stablecoin to the Palestinian economy, alongside increased digital infrastructure for Gaza, is a much-needed step toward a short- or medium-term solution. In the long term, however, this solution remains tethered to the same banking systems subject to external control through Israeli banks.
New beginnings for Palestinian financial sovereignty
A new vision of Palestinian financial sovereignty must provide individuals with access to reliable, secure, and readily available transaction mechanisms. For example, this would include a monetary environment with predictable settlement capabilities, diversified banking relationships, accessible international digital financial corridors, integrated standards for anti-money laundering and countering the financing of terrorism (AML/CFT) and compliance mechanisms, and an infrastructure that enables microenterprises to safely store value and grow.
Financial sovereignty for Palestinians does not imply secession from central-bank monetary systems, but rather a principled, human-rights-based approach to (re)creating a Palestinian economy. Continued failure to provide access and lawful options, however, leaves average Palestinians behind with their existing informal broker networks—often charging fees between 20 percent and 40 percent—and a cash payment structure in which Hamas patronage thrives. It provides another example of Hamas’s financial power and ability to raise and move funds existing in the places where the formal (financial) systems fail.
Economic resilience requires financial sovereignty and market access, which can enable peace and conflict resolution through economic development, resilience, stability, job creation, and more. Every person should have the ability to pursue and have reasonable access to financial inclusion and market stability. This is in part why many developing economies have supported and integrated digital assets, including stablecoins, into their markets. Stablecoins are also paired with new technology for tracking and oversight, such as services like Chainlysis or other providers offering software for investigation, compliance, and risk-management services for on-chain transactions.
True financial sovereignty for Palestinians remains a diplomatic challenge that will only be fully resolved with state-level negotiations and agreements.
Yet, in the meantime, Palestinians can develop pathways to financial agency while accounting for Israeli security needs. For example, there can be new efforts to develop industry-standard AML/CFT networks compliance, without putting Palestinians at personal added risk, including putting KYC (“know your customer”) information on blockchain and other new innovations now available in the field.
Technology as a stabilization tool
There are several emerging models that demonstrate that compliant digital infrastructure and aid rails can operate without undermining international financial regulatory systems. Humanitarian platforms such as Red Rose and UNDP demonstrate that transparent, rules-based digital distribution and transactions are possible, even in the most fragile economic environments.
Though these efforts have proven successful, these digital-cash-distribution projects still rely on Palestinian banking and, therefore, Israeli bank clearing. They nevertheless demonstrate the adaptability of these tools in creating digital aid rails and cash-settlement opportunities, with embedded compliance screenings and point-of-sale integrations, in an extremely constrained context. These models of cash distribution still provide protections, auditability, and accountability for regulations on anti-money laundering and sanctions compliance.
Other futures are possible
A humanitarian crisis is brewing that Israel has a unilateral opportunity to either prevent or exacerbate. Much of this power is centralized with Smotrich and depends on Israeli political decisions, and therefore, it is ever more critical to build financial inclusion, autonomy, and resilience for Palestinians.
Israel and the international community have very real security needs when it comes to Palestinian banking and finance due to the sophisticated use of crypto, cash, and international shell companies by Hamas and its core funder, Iran. Yet, ordinary, civilian Palestinians have very real financial needs. These are not zero-sum.
There are methods for the Palestinian economy to be granted reasonable access to financial inclusion and transaction models that are not dependent on Israeli banking.
While the options to preserve correspondent banking access, restart shekel repatriation, and other solutions are priorities in the immediate term for the Palestinian financial sector, in the medium and long term, Palestinians and their allies can and should be supported in efforts to build both new, accessible, and low-cost economic models and transmission rails, using innovative fintech, which are interoperable with international financial actors, compliant with international regulations, and secure.
A credible plan for Gaza and the future Palestinian state must account for financial agency at the household and small enterprise levels. The “last mile” for Gaza will not rely entirely on physical infrastructure or even on the military defeat of Hamas; it will be its financial future and the corresponding financial infrastructure. Now is a moment when Palestinian tech entrepreneurs, economists, and business leaders can begin moving toward a future free of dependence on Israeli political decisions or external central bank infrastructure.
About the author
Melanie Robbins is the deputy director of Realign for Palestine, a project of the Atlantic Council’s Rafik Hariri Center and Middle East programs.
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Through our Rafik Hariri Center for the Middle East, the Atlantic Council works with allies and partners in Europe and the wider Middle East to protect US interests, build peace and security, and unlock the human potential of the region.
Image: Displaced Palestinians shop at a temporary popular market in Khan Younis, amid a decline in food, vegetable, and fuel imports to the Gaza Strip since the war launched by the United States and Israel on Iran, driving up prices, emptying markets, and adding new burdens after two years of war, March 9, 2026. Photo by Tariq Mohammad APA Images/Reuters