US warns Israel’s actions could topple Palestinian banks, destabilize West Bank
Palestinians line up at an ATM outside a Bank of Palestine branch in Rafah in the southern Gaza Strip, Dec. 8, 2023. (Abed Rahim Khatib/Flash90)
The Biden administration is increasingly concerned that Israel’s Finance Minister Bezalel Smotrich may take steps to cut Palestinian banks off from the Israeli financial system, potentially triggering an economic collapse in the occupied West Bank.
Two U.S. officials told Axios that such a move could further destabilize the region and lead to a power vacuum that might exacerbate the ongoing conflict between Israel and Palestinians.
Israeli finance minister’s power over Palestinian banks
Smotrich, an ultranationalist anti-Palestinian settler, holds significant influence as both finance minister and a minister in the Israeli Ministry of Defense responsible for civilian affairs in the West Bank. His control extends to authorizing Israeli banks to conduct transactions with Palestinian banks without the risk of being accused of money laundering or funding terrorism. Without this approval, Palestinian banks would be cut off from the Israeli financial system.
The Palestinian proposal proves for the umpteenth time how hostile the Palestinian Authority is to Israel and how much the State of Israel must treat it as such on all levels. I will continue to fight for its legitimacy and to eradicate the folly of the Palestinian terrorist state that will endanger the entire State of Israel. The anti-Semitic hypocrisy at the UN does not stop breaking its own records. This is an unfortunate decision that embraces absolute evil and tries, without a chance to succeed, to fight for the State of Israel. The people of Israel live and the people of Israel win”
Israel’s Finance Minister Bezalel Smotrich
In June, Smotrich extended the authorization for Israeli banks working with Palestinian banks by only four months, instead of the usual one-year period. His actions are seen as part of a broader strategy to weaken the Palestinian Authority and bolster Israeli settlements in the West Bank.
US and G7 concerns over economic fallout
The current banking authorization is set to expire on Oct. 31, and U.S. officials are warning that Smotrich may refuse to renew it. During a recent meeting of treasury and finance officials from G7 countries, the U.S. expressed concerns that cutting off Palestinian banks could destabilize the West Bank, potentially leading to violent escalation.
“If Palestinian banks are cut off, the West Bank could turn into a cash economy, benefiting terrorist organizations that operate primarily with cash,” a G7 official said. The collapse of the Palestinian banking system would also weaken the Palestinian Authority’s security forces, reducing their ability to combat terrorism, according to the official.
Potential for regional instability
The Biden administration, along with its G7 allies, has been communicating its concerns to the Israeli government. U.S. officials have warned that a collapse of the Palestinian banking system could severely impact access to food and essential services for civilians, heightening the risk of widespread unrest. “Such behavior doesn’t only endanger stability in the West Bank but also Israel’s security,” a U.S. official stated.
Despite these concerns, the U.S. and G7 countries are not engaging with Smotrich directly due to his extreme views. Instead, they are conveying their message through Israel’s Foreign Minister Israel Katz, Minister for Strategic Affairs Ron Dermer, and Prime Minister Benjamin Netanyahu.
Uncertain future ahead of October deadline
Smotrich has laid out technical conditions for extending the banking authorization, including a third-party review of the Palestinian banking system. However, U.S. and G7 officials fear that as the deadline approaches, Smotrich may impose additional demands, focusing more on expanding Israeli settlements in the West Bank than on financial matters.
