Israel’s far-right finance minister, Bezalel Smotrich, has cancelled a waiver that Palestinian banks rely on to operate hours after five Western governments announced he faced sanctions, along with fellow ultra-nationalist Minister Itamar Ben-Gvir, for inciting violence against Palestinians in the occupied West Bank.
Warnings have previously been raised that Israel’s ending of the waiver could have devastating consequences for the Palestinian economy, which is dependent on the Israeli banking system as the Palestinian Authority (PA) does not have its own central bank or currency.
“Finance Minister Bezalel Smotrich has instructed Accountant General CPA Yali Rothenberg to cancel the indemnity provided to correspondent banks dealing with banks operating in Palestinian Authority territories,” Smotrich’s office said in a statement on Tuesday, announcing the changes.
The statement also directly linked Smotrich’s decision to the PA’s international advocacy against the establishment of illegal settlements in the occupied territories, which the minister’s office described as the “delegitimisation campaign against the State of Israel internationally”.
Smotrich’s decision to end the waiver came hours after Australia, Canada, New Zealand, Norway and the United Kingdom announced sanctions against him, as well as against Israeli National Security Minister Itamar Ben-Gvir for their “incitement of violence” against Palestinians.
The sanctions were not publicly linked to Smotrich’s targeting of the PA, which governs parts of the occupied West Bank and represents Palestine at international forums, including the United Nations and the International Court of Justice (ICJ).
However, Smotrich has a history of blaming the PA and punishing the 2.7 million Palestinians in the occupied West Bank in retaliation for international condemnation of Israel’s illegal occupation.
“For every country that unilaterally recognises a Palestinian state, we will establish a settlement,” Smotrich said in July 2024, as he announced that Israel was “recognising” five illegal Israeli settlements in the occupied West Bank after five more countries – Norway, Spain, Ireland, Armenia and Slovenia – announced they were recognising Palestinian statehood.
He has also called for Israel to annex the occupied West Bank if the ICJ ruled that Israeli settlements are illegal.
‘A humanitarian crisis’
The end of the waiver could have a devastating impact on the finances of Palestinians, particularly in the occupied West Bank, which has already suffered multiple economic blows over the past two years.
The overwhelming majority of exchanges in the West Bank and Gaza are in shekels, Israel’s national currency, because Palestine is not allowed to have its own central bank or print its own currency, which means that Palestinian banks are reliant on Israeli banks to operate.
But Israeli banks only continue to work with the Palestinian banks because of the government waiver, which protects them from potential legal action relating to transactions with their Palestinian counterparts.
Israeli Prime Minister Benjamin Netanyahu’s government has repeatedly threatened to end the waiver in the past, prompting rebukes from even Israel’s closest allies.
Janet Yellen, the United States Treasury Secretary in former President Joe Biden’s administration, warned in May last year that “to cut Palestinian banks from Israeli counterparts would create a humanitarian crisis”.
In July, G7 countries urged Israel to “take necessary action” to ensure the continuity of Palestinian financial systems.
The UN has also warned that “unilaterally cutting off Palestinian banks from the global banking system would be a violation of the fundamental principles of international law”.
Under this pressure, the Israeli government has agreed to extend the waiver for short periods. However, far-right ministers like Smotrich and Ben-Gvir have always objected.
After one vote in November last year, Ben-Gvir, who has been convicted in Israeli courts of possessing a “terror” organisation’s propaganda material and supporting a “terror” organisation, wrote in a post on X that he had a “principled objection” to indemnifying the Israeli banks.
The Palestinian Authority should be completely cut off and “collapsed”, he said.