West Bank Faces Cash Surplus Crisis Amid Banking Constraints

RAMALLAH, West Bank: Imagine a customer at a gas station handing over a thick stack of bills to pay for fuel, only to be told the cashier cannot accept it because the station’s bank has halted deposits of notes and coins, overwhelmed by excess cash.
While cash remains king elsewhere, in the Israeli‑occupied West Bank an overabundance of shekels is choking everyday commerce. The Palestinian banking system holds more Israeli shekels than it can process, making it harder for residents to spend money and for businesses to deposit takings.
The surplus originates from a standoff between the Bank of Israel and the Palestinian Monetary Authority, which regulates Palestinian banks. Israel caps the amount of physical currency it will take back from the West Bank, a limit that Palestinian officials say has not kept up with economic growth and functions as a tool to keep the territory under economic pressure.
Unlike Gaza, where a near‑total blockade has created cash shortages, West Bank banks are running out of vault space to store piles of shekels. With the Bank of Israel refusing additional notes and coins, commercial banks cannot convert cash into electronic balances to pay suppliers or process customer transfers.
“The banks have been shackled in their ability to cope with this crisis,” said Mohammad Manasra, deputy governor of the Palestinian Monetary Authority, in an interview with The Associated Press. “What is being practiced in the West Bank amounts to economic warfare.”
More cash enters the West Bank than Israel permits to leave
In most economies, central banks withdraw cash from commercial banks and credit them electronically, enabling settlements and meeting customer demand. In the occupied West Bank—where Palestinians have no authority over the shekel’s monetary policy—the system works differently.
For decades the Palestinian economy has relied mainly on the Israeli shekel, depending on Israel to facilitate trade, collect taxes and process payments for imported goods under agreements dating to the 1990s. A cash surplus builds because the economy operates almost entirely on physical currency, and more shekels flow in from Israel than can be withdrawn.
Why? Israeli employers and settlements pay Palestinian laborers in cash, and Palestinian citizens of Israel often buy goods such as cigarettes and fuel in the West Bank, adding to the inflow. As cash accumulates, the surplus sits idle in Palestinian banks, earning no interest and unavailable for loans, investments or bill payments.
Israel’s annual limit on cash transfers from the West Bank’s banking system stands at 18 billion shekels (about $5.9 billion), yet banks report accumulating roughly 30 billion shekels per year, according to economist Moayad Afaneh, who has advised the Palestinian Authority.
Previously, Israeli officials hesitated to raise the cap, warning that returned money could be tied to money‑laundering, tax evasion or terrorism.
The Bank of Israel said it adheres to the current government’s policy on how many shekels to accept, noting that fewer Palestinians have worked in Israel since the Gaza war began, thereby reducing the cash entering the West Bank.
Israeli Finance Minister Bezalel Smotrich’s office did not reply to requests for comment, but in September 2025 Smotrich threatened to “use all of the tools” at his disposal to block the creation of a Palestinian state, including “economic strangulation.”
Palestinians view Israel’s shekel cap as economic leverage
Since Hamas‑led militants attacked Israel in October 2023, triggering the Gaza war, Israel has imposed a series of measures that have weakened the West Bank’s economy. It revoked most work permits for Palestinians employed in Israel, cutting a major income source. It has also withheld tax and customs revenues collected on behalf of the Palestinian Authority, leaving the Authority unable to fully pay public‑sector workers—teachers, hospital staff and others—for more than a year.
As vault space dwindles, banks must pay to store and insure cash they cannot offload, leading them to accept less from businesses and households, which then must find alternative ways to safeguard their money.
The excess shekel problem is “directly undermining the government’s capacity and the private sector’s ability to sustain services for key industries and the Palestinian populace,” Manasra said.
He noted, for example, that most of the West Bank’s fuel and electricity is imported from Israel or bought from Israeli utilities. When banks tie up too many assets in physical cash, they lack the liquidity needed when clients such as the Palestinian Authority or municipal authorities need to transfer payments for fuel, water and electricity.
Fears of looting by Israeli soldiers conducting increasingly frequent home raids have exacerbated the situation, Afaneh added. Palestinians are depositing more cash in banks because they worry soldiers will seize it, alleging that large sums could be used for illicit purposes or terrorism.
Holding large cash reserves also hurts banks’ profitability, since they cannot lend the money as most banks do electronically. A 2022 International Monetary Fund study estimated that excess cash cut Palestinian banks’ profits by roughly 20 percent—a figure Afaneh believes is likely higher today.
Cash‑based businesses have money but cannot pay suppliers
Inside the Ramallah headquarters of the Al‑Huda Group, cigarette smoke and tea steam drift through an office where clerks feed banknotes into machines that spit out neat stacks of counted bills. The company runs filling stations, convenience stores, grocery and home‑improvement outlets, car washes and other ventures that collect tens of millions of shekels each month.
Stockpiles of cash that these businesses cannot deposit because banks are full have made routine operations more difficult and costly, said Hussni Jaber, the group’s executive manager.
To make electronic payments to Palestinian and foreign suppliers, some businesses have taken out loans or purchased other currencies while also paying extra to store their surplus cash securely, Jaber explained.
When they cannot settle their bills, some gas stations have been forced to halt fuel pumps. The Palestinian Authority pointed to this issue when gas stations temporarily closed on Saturday.
Last month, a number of gas‑station owners staged a 30‑minute strike across the West Bank—including the 22 outlets operated by Al‑Huda—to highlight the cash crisis. The action has so far elicited little response.
With their earnings trapped outside the formal banking system, business leaders warn that the cash glut could eventually prevent West Bank firms from importing fuel, food and medical supplies from Israel or abroad, Jaber said.
“All sectors will collapse if the cash problem is not resolved,” he warned.

Source link