The governor of the central bank of Palestine said that studies are happening on a CBDC; however, local economic analysts do not consider the project to be possible.
The governor of the central bank of Palestine revealed that a series of studies is at work on a CBDC; however, local economic analysts do not consider the project to be possible.
The Palestinian Monetary Authority (PMA), which serves as the central bank in that state, is studying the possibility of issuing a central bank digital currency (CBDC). Bloomberg reported the news on Thursday, citing the governor of the entity, and stated that the measure would represent a coup of monetary independence for Palestine.
The Palestinians do not have an independent official legal tender due to an agreement that Palestine signed with Israel in the 1990s. The Palestinian economy relies on the Israeli shekel (Israel’s legal tender) for routinary transactions. For their part, the Jordanian dinar (Jordan’s official currency) and the US dollar act as stores of value for its citizens.
Feras Milhem, the governor of the Palestinian Monetary Authority, told Bloomberg that two studies on cryptocurrencies are happening in hopes of finding ways to issue a digital currency. These payments would cover domestic and international needs.
If a CBDC faces its test, Palestine could catch up with major geopolitical players, including China and Sweden, which have already started applying a digital currency. However, there are few challenges that Palestine is facing to develop such a project.
Palestine considers CBDC, But Some Are Skeptical on the Matter
Some regional economic analysts also expressed concern about the viability of a Palestinian digital currency. Barry Topf, a former senior adviser to the governor of the Bank of Israel, agreed that a Palestinian digital currency would never come to be a medium of exchange.
According to the report, Palestinian banks currently manage shekels. The reason is an Israeli law that prohibits large transactions using cash due to anti-money laundering (AML) regulations. Furthermore, Israel limits the amount of fiat currency that Palestinian banks can transfer to Israel every month.
This limitation leads Palestinian banks to borrow to cover foreign exchange payments to third parties, leaving them with a surplus of Israeli banknotes. The issuance of a CBDC could potentially address this inefficient arrangement.
The Israeli Limitations are Harming Palestine Economy
However, this series of limitations imposed by Israel has created a terrible and unprecedented economic situation for Palestine, which depends mainly on donations and remittances. According to Bloomberg, The World Bank estimated in February that the local economy contracted 11.5% last year, in part due to the Covid-19 pandemic.
While local analysts did not seem to share the idea that a digital currency would be viable in Palestine, Khalidi argued that the issuance of some form of digital currency by the PMA would respond more to a question of political symbolism than monetary relief.
By: Jenson Nuñez
