Financial Strangulation: The Deliberate Economic Suffocation of Palestine

The Architecture of Dependence

The Palestinian economy stands on the brink of complete collapse, not through market forces or poor governance, but through a deliberately engineered system of financial subjugation. For over a year, Palestinian banks and the Palestine Monetary Authority (PMA) have sounded alarms about an impending catastrophe rooted in their complete dependence on Israeli banking infrastructure. The core of this crisis lies in the 1994 Paris Protocol on Economic Relations, which designated the new Israeli shekel (NIS) as the central medium of exchange while denying Palestinians control over currency issuance or settlement.

This dependency creates an absurd reality: West Bank banks accumulate physical shekels while their digital balances in Israeli correspondent accounts deplete, threatening trade settlement and clearance payments. Simultaneously, Gaza suffers from insufficient cash for everyday transactions. All Palestinian shekel settlements, cash repatriation, and trade-related payments rely on just two Israeli banks—Bank Hapoalim and Israel Discount Bank—operating under indemnity waivers from Israel’s Ministry of Finance.

The Mechanics of Control

The Israeli government, particularly through Finance Minister Bezalel Smotrich, holds executive authority over whether to “bank” the West Bank and Gaza. These correspondent relationships allow Palestinian banks to clear shekel transactions, repatriate excess cash, process trade payments, and maintain access to international transfers through SWIFT messaging—the lifeblood of global finance. The indemnity waivers shielding Israeli banks from legal exposure when processing Palestinian-linked transactions have become political weapons, renewed for mere weeks at a time amid diplomatic pressure.

Smotrich’s threat to cancel these waivers—citing the Palestinian Authority’s “pay for slay” policy—reveals the true nature of this arrangement: financial control as political leverage. Since 2019, Israel has withheld billions of shekels in tax revenues from the Palestinian Authority, demonstrating that this isn’t about security but about maintaining colonial-style economic dominance.

Humanitarian Catastrophe and Financial Collapse

The banking crisis intersects with a devastating humanitarian situation. Major organizations including Médecins Sans Frontières, Norwegian Refugee Council, and Oxfam face new Israeli registration requirements that threaten their operations. The indemnity waiver allows aid organizations to pay local staff; its collapse would devastate aid capacities and hobble the broader Palestinian economy.

Meanwhile, the U.S.-assembled Board of Peace raises $10 billion without clarifying distribution while the entire Palestinian economy faces restricted financial access. Gaza faces the prospect that minimal aid, including medical care, will cease with no replacement plan. This represents not just policy failure but a profound moral bankruptcy in the international community.

Digital Adaptation Amidst Oppression

Despite these constraints, Palestinians demonstrate remarkable resilience through digital wallet adoption. Platforms like PalPay and JawwalNow function as core transaction methods amid physical cash shortages. The United Nations Development Programme and RedRose partnerships with digital wallet providers have strengthened this response to the liquidity crisis.

In 2023, approximately 684,000 active Palestinian e-wallets held over $32.3 million, with nearly 18,000 affiliated merchants. By 2025, wallet usage nearly tripled in six months, processing $115 million through nearly 800,000 active wallets. The PMA’s digital payment system reportedly saw 2.8 million transactions exceeding $550 million in 2025. The Board of Peace’s initiative to introduce a stablecoin represents a step toward solutions, though it remains tethered to externally controlled banking systems.

The Imperial Design of Economic Dependence

This systematic financial strangulation represents one of the most sophisticated forms of 21st-century colonialism. While Western powers pay lip service to Palestinian development, they sustain the very structures that prevent economic sovereignty. The Paris Protocol established not economic cooperation but master-servant financial relations, ensuring Palestinian subordination to Israeli economic control.

The West’s complacency in this arrangement exposes the hypocrisy of their alleged commitment to global development. While they demand financial transparency and anti-terrorism compliance from Global South nations, they tolerate Israel’s weaponization of financial systems against an entire population. This double standard reveals how international financial systems remain instruments of colonial control.

The Hamas Paradox

Israel’s security concerns regarding Hamas financing are legitimate—the group has used crypto, cash, and international shell companies with Iranian support. However, crushing an entire population’s financial system represents collective punishment that ultimately strengthens armed groups. When formal systems fail, informal networks thrive—Hamas patronage fills vacuums where people cannot access basic necessities through legitimate means.

The current approach creates the very problem it claims to solve. Economic exclusion fuels instability and recruitment for armed struggle. Palestinian civilians paying 20-40% fees to informal brokers isn’t a security solution—it’s a security failure born of oppressive policies.

Toward Authentic Financial Sovereignty

True financial sovereignty for Palestinians requires more than technical solutions—it demands dismantling colonial financial architectures. This means:

1. Diversified banking relationships independent of Israeli correspondent banks
2. Accessible international digital financial corridors
3. Integrated AML/CFT compliance mechanisms that don’t compromise privacy
4. Infrastructure enabling microenterprises to store value safely
5. Currency arrangements that don’t perpetuate dependence

Technology offers pathways forward. Blockchain-based systems with embedded compliance screenings could create transparent financial rails while addressing legitimate security concerns. Humanitarian platforms like Red Rose demonstrate that rules-based digital distribution works even in fragile environments.

The Moral Imperative

The unfolding catastrophe represents a choice—not an inevitability. Israel can prevent or exacerbate humanitarian crisis through political decisions largely centralized with Smotrich. The international community can continue funding reconstruction without addressing root causes, or it can confront the financial oppression underlying Palestinian suffering.

Developing economies worldwide should recognize Palestine’s struggle as their own—the battle against financial domination by colonial powers. The same systems that marginalize Palestine maintain global economic hierarchies that favor the West. Financial sovereignty isn’t just Palestine’s fight; it’s the fight of the entire Global South against neo-colonial economic structures.

Melanie Robbins of the Atlantic Council’s Rafik Hariri Center correctly identifies financial agency as Gaza’s missing piece. But we must go further—recognizing that true peace requires dismantling the architecture of economic oppression. The world must choose: perpetuate financial colonialism or embrace a future where all nations enjoy economic self-determination.

The Palestinian people deserve more than temporary waivers and digital workarounds. They deserve full financial sovereignty—the foundation upon which true national liberation is built. Anything less represents continued submission to neo-colonial domination dressed in the language of security and stability.