17 Billion Shekels in the Coffers.. When Liquidity Turns into a Crisis of Economic Sovereignty

"It's not the lack of money that poses the greatest threat to the Palestinian economy today… but the potential for money itself to turn into a crisis"; this is not a rhetorical phrase, but a precise description of one of the gravest challenges facing the Palestinian economy at this stage. While economies strive to increase liquidity and stimulate investment, the Palestinian economy experiences a rare paradox: money is piling up within bank coffers, exceeding 17 billion shekels, while restrictions on the transfer of surplus shekels allow for only about 4.5 billion shekels to be withdrawn every three months, turning cash abundance from a source of strength into a source of economic concern.

Some may think this is a banking crisis that concerns only the banks, but the truth is that it is a crisis affecting every Palestinian citizen. It impacts the merchant who relies on daily deposits, the investor who needs a stable cash flow, the companies managing their financial obligations, and the national economy as a whole.

Not a Banking Crisis… But a Monetary System Crisis
It is important from the outset to correct a common misconception; the current crisis does not reflect a weakness in the Palestinian banking system, nor a deficiency in the performance of the Palestinian Monetary Authority or the Palestinian Banking Association, but is instead a direct consequence of restrictions imposed on the movement of surplus shekels, in a context where the economy relies on a currency that is neither issued by it nor controlled in its cross-border flow.

For decades, the Palestinian banking sector has demonstrated high resilience and operational efficiency, even in the most challenging political and economic circumstances. The Palestinian Monetary Authority has continued to play its supervisory and regulatory role to maintain financial stability, while the Palestinian Banking Association has taken a pivotal role in representing the banks operating in Palestine, uniting their positions, and communicating with various local and international entities to find solutions to this crisis.

How Did We Reach This Stage?
The Palestinian economy relies on the shekel as the main currency for transactions. Large amounts of it enter the Palestinian market daily due to trade exchanges and salaries of Palestinian workers employed inside Israel. Under normal circumstances, banks collect surplus shekels and reload them to Israeli banks, but the restrictions imposed on this process have led to a clear imbalance between the volume of cash entering the market and the volume of cash permitted for withdrawal, resulting in a rapid accumulation of sums within bank coffers. Today, with the accumulated cash value exceeding 17 billion shekels, the crisis has become a genuine operational and financial challenge, imposing additional costs for storage, protection, and transportation, and affecting the efficiency of liquidity management within the banking system.

When Liquidity Becomes a Burden
In economics, liquidity is one of the most critical growth factors, but only if it is moving. When money remains trapped in the coffers, it becomes idle capital, and every shekel not circulating in the economy represents a lost investment opportunity, a delayed project, or a less efficient economic activity. Moreover, holding large amounts of cash raises operating costs, increases security risks, and limits the flexibility of liquidity management, despite banks continuing to meet their obligations to clients.

Numbers That Deserve Attention
When we talk about more than 17 billion shekels accumulated within bank coffers, we are not just discussing a number; we are talking about liquidity equivalent to billions of dollars that remain outside the natural economic cycle. In contrast, the amounts permitted for transfer do not exceed 4.5 billion shekels every three months, creating an increasing gap between incoming flows and the ability to dispose of surplus, exacerbating the crisis over time. In economic terms, the problem is not a lack of liquidity… but its congestion.

National Efforts Worthy of Appreciation
It is fair to assert that the Palestinian Monetary Authority and the Palestinian Banking Association have not stood idle in the face of this crisis; the Monetary Authority has worked to manage risks and maintain financial stability, while the Banking Association has intensified its communications with international financial institutions, including the World Bank and the International Monetary Fund, as well as other international partners, to draw attention to the urgency of the crisis and seek practical solutions that ensure the ongoing operation of the banking sector in a normal manner. These efforts reflect a clear acknowledgment that the issue is no longer merely a banking one, but has become a matter that touches upon the stability of the entire Palestinian economy.

Where Should Efforts Be Directed?
It is unfortunate that some criticisms occasionally direct themselves towards Palestinian banks, while the facts indicate that the root of the problem lies outside their authority. The banking sector does not control the ceilings on the transfer of surplus shekels and does not have the authority to change the regulations governing this. Therefore, any official, media, or popular effort to address this crisis should focus on removing the restrictions imposed on the movement of surplus shekels, considered the main reason for the exacerbation of the problem, instead of placing the responsibility on Palestinian institutions that are working daily to mitigate its effects. Directing pressure towards addressing the real cause of the crisis is more productive than targeting national institutions committed to maintaining financial stability under exceptional circumstances.

What Comes Next?
The current crisis carries an important message: an economy that relies on a currency it does not have the authority to issue or manage its movement will remain susceptible to such bottlenecks. Here, solutions should proceed along two parallel paths: the first path is to continue political and technical efforts to remove the restrictions imposed on the transfer of surplus shekels and ensure the natural flow of the monetary cycle, and the second is to expand electronic payment methods and enhance the use of other currencies in certain transactions while developing financial infrastructure to reduce reliance on cash. However, these measures, despite their importance, remain supportive solutions, while the fundamental solution lies in enabling the Palestinian economy to manage its monetary tools more independently.

Final Word
The crisis of shekel accumulation reveals an economic reality that should not be ignored; that the strength of the banking sector, no matter how great, is not sufficient if the environment in which it operates imposes constraints beyond its capacity to manage. The Palestinian Monetary Authority, the Palestinian Banking Association, and the Palestinian banking sector have proven high efficiency in managing the crisis and mitigating its repercussions, but the continued accumulation of cash verifies that the issue is not related to administrative efficiency but rather the restrictions hindering the natural movement of money. Economies are not solely measured by the amount of liquidity they possess but rather by their ability to manage that liquidity freely and efficiently. When circulating currency becomes a burden on the economy instead of a driver, the issue is no longer a temporary monetary crisis but has evolved into a matter of economic sovereignty deserving of priority in decision-making and attention from public opinion, as the stability of the Palestinian financial system is not only the concern of the banking sector but a national interest that affects the future of the entire Palestinian economy.

 

Dr. Imad Ali Al-Saadi

PhD in Economics and Islamic Finance