The Minister of Finance of Israel, Bezalel Smotrich, canceled a derogation on which the Palestinian banks count to operate hours after five Western governments announced that he had faced sanctions, as well as his other ultra-nationalist minister Itamar Ben-Gvir, for having encouraged violence against the Palestinians in the occupied West Bank.
Warnings have already been raised that the end of the derogation by Israel could have devastating consequences for the Palestinian economy, which depends on the Israeli banking system because the Palestinian Authority (PA) does not have its own central bank or currency.
“The Minister of Finance, Bezalel Smotrich, asked the general accountant CPA Yali Rothenberg to cancel the compensation provided to the corresponding banks dealing with banks operating in territories of the Palestinian Authority,” the Smotrich office said on Tuesday, announcing changes.
The declaration also directly linked Smotrich’s decision to the international advocacy of the AD against the creation of illegal colonies in the occupied territories, which the minister’s office described as the “delegitimation campaign against the State of Israel on an international scale”.
Smotrich’s decision to end the renunciation occurred a few hours after Australia, Canada, New Zealand, Norway and the United Kingdom have announced sanctions against it, as well as against the Israeli Minister of National Security Itamar Ben-Gvir for their “incentive of violence” against the Palestinians.
The sanctions were not publicly linked to the Smotrich targeting of the AP, which governs certain parts of the occupied West Bank and represents Palestine during international forums, in particular the United Nations and the International Court of Justice (ICJ).
However, Smotrich has a history of the AP blame and punish the 2.7 million Palestinians in the occupied West Bank in retaliation for the international condemnation of the illegal occupation of Israel.
“For each country which unilaterally recognizes a Palestinian state, we will establish a regulation,” said Smotrich in July 2024, when he announced that Israel “recognized” five illegal Israeli colonies in the occupied West Bank after five other countries – Norway, Spain, Ireland, Armenia and Slovenia – announced that they recognized the Palesténian state.
He also called on Israel to annex the occupied West Bank if the ICJ judged that the Israeli colonies were illegal.
“A humanitarian crisis”
The end of the exemption could have a devastating impact on the finances of the Palestinians, in particular in the occupied West Bank, which has already undergone several economic shots in the past two years.
The overwhelming majority of exchanges in the West Bank and Gaza are in Shekels, the national currency of Israel, because Palestine is not authorized to have its own central bank or to print its own currency, which means that Palestinian banks depend on the Israeli banks to operate.
But Israeli banks only continue to work with Palestinian banks due to the government’s derogation, which protects them from potential legal action relating to transactions with their Palestinian counterparts.
The government of Israeli Prime Minister Benjamin Netanyahu has repeatedly threatened to end the renunciation in the past, which has prompted the reprimands of the closest to Israel.
Janet Yellen, the United States Treasury Secretary in the administration of former President Joe Biden, warned in May from last year that “cutting Palestinian banks from Israeli counterparts would create a humanitarian crisis”.
In July, the G7 countries urged Israel to “take the necessary measures” to ensure the continuity of Palestinian financial systems.
The UN also warned that “unilaterally cutting Palestinian banks in the world banking system would constitute a violation of the fundamental principles of international law”.
Under this pressure, the Israeli government has agreed to extend the derogation for short periods. However, the far-right ministers like Smotrich and Ben-Gvir have always opposed.
After a vote in November of last year, Ben-Gvir, who was sentenced by Israeli courts of possession of the propaganda of a “terrorist” organization and to support a “terrorist” organization, wrote in an article on X that it had a “objection in principle” to compensate Israeli banks.
Palestinian authority should be completely cut and “collapsed,” he said.
