Israel Ends Key Waiver, Risking Palestinian Economy

Post by : Bianca Suleiman

Photo: AFP

Israel’s far-right Finance Minister Bezalel Smotrich has canceled a special permission that allows Palestinian banks to work with Israeli banks. This happened just hours after five Western countries—Australia, Canada, New Zealand, Norway, and the United Kingdom—put sanctions on him and another far-right minister, Itamar Ben-Gvir. These sanctions were due to their role in encouraging violence against Palestinians in the occupied West Bank.

This permission, known as a "waiver," is very important because the Palestinian Authority (PA) does not have its own currency or central bank. Palestinians use the Israeli shekel for most of their money exchanges. So, Palestinian banks need to work with Israeli banks to function properly. Without the waiver, Israeli banks could face legal risks when dealing with Palestinian banks. Because of that risk, they might stop working together.

Smotrich’s office released a statement on Tuesday, saying that he had ordered the Accountant General to cancel the legal protection for Israeli banks that deal with Palestinian banks. The reason, according to the statement, was the Palestinian Authority’s efforts to speak out internationally against illegal Israeli settlements. The minister called these actions a “campaign to harm Israel’s image around the world.”

Although the new sanctions were not directly linked to Smotrich’s action, it’s clear that the tension is growing. Smotrich has a long history of blaming the PA and taking harsh steps against the 2.7 million Palestinians living in the occupied West Bank.

In July 2024, Smotrich said that for every country that recognizes Palestine as a state, Israel would build a new settlement. This statement came after five countries—Norway, Spain, Ireland, Armenia, and Slovenia—decided to recognize a Palestinian state. At that time, Smotrich also said Israel would recognize five more illegal settlements in the West Bank. He even said that if the International Court of Justice (ICJ) ruled that these settlements are illegal, Israel should go ahead and fully annex the West Bank.

Now, by ending the waiver, Smotrich is putting the Palestinian economy in great danger. The West Bank has already been suffering from economic problems for the past two years. If banks can’t send or receive money, it will hurt people’s lives badly.

This is not the first time the Israeli government has thought about canceling the waiver. But each time in the past, the idea was dropped after warnings from international leaders.

Last year, U.S. Treasury Secretary Janet Yellen said cutting off Palestinian banks could cause a “humanitarian crisis.” In July, the G7 nations told Israel to keep the Palestinian financial system running. The United Nations also warned that doing so would break international laws.

Because of these pressures, the Israeli government had extended the waiver many times, but only for short periods. Far-right ministers like Smotrich and Ben-Gvir have always disagreed with keeping the waiver.

After a vote in November last year, Ben-Gvir posted online that he strongly opposed giving legal protection to Israeli banks dealing with the Palestinians. He even said the Palestinian Authority should be completely cut off and “collapsed.”

Now, with the waiver officially canceled, many worry this could push the Palestinian economy toward disaster, affecting millions of innocent lives.