By: Dr. Raed Muhammad Hillis.
(Exclusively for al-Zaytouna Centre).
A recent academic study argues that the cash liquidity crisis in Gaza Strip (GS) reflects deeper structural constraints and sustained political pressure that threaten the cohesion of the Palestinian financial system and its institutional framework. It further contends that proposals to introduce a “local digital currency” carry significant political and strategic implications. Such proposals, the study warns, could reconfigure the financial system in ways that deepen economic fragmentation between GS and the West Bank (WB) and weaken the overall integrity of the Palestinian monetary framework. Accordingly, the study recommends reaffirming the Palestinian Monetary Authority (PMA) as the sole authority for monetary policy. It also calls for the reactivation of official banking channels to ensure the orderly injection of liquidity through the financial system of the Palestinian Authority (PA), alongside the development of national digital payment infrastructure and stronger regulation of informal financial networks.
These findings are presented in an academic paper, in Arabic, issued by Al-Zaytouna Centre for Studies and Consultations, titled “Cash Liquidity Crisis and the Risks of Transitioning to Digital Currency in Gaza Strip: The Implications of Financial Separation for the Palestinian Financial System,” by Dr. Raed Muhammad Hillis, an economist specializing in the Palestinian economy, who holds a PhD in Economics and is based in GS.
The paper notes that GS is facing an acute and unprecedented cash liquidity crisis, driven by the destruction of banking infrastructure and the disruption of cash inflows due to war and a tightened financial blockade that has restricted the entry of cash throughout the war, with restrictions persisting even after the ceasefire agreement. This has produced significant structural distortions, including the expansion of the informal economy, record-high cash withdrawal fees, and increasing monopolistic practices and liquidity hoarding outside formal banking channels. In this context, international proposals have emerged advocating a “local digital currency” as a technical response. However, the study warns that such proposals entail serious strategic risks, particularly by deepening financial fragmentation between GS and WB and weakening the regulatory role of the PMA, thereby undermining the cohesion of the national financial system.
The study also examines the technical and sovereignty-related challenges of such a shift, particularly given the fragility of infrastructure in the energy and telecommunications sectors, as well as the risks that digital systems could be used as tools of external surveillance and control.
It seeks to provide an in-depth analysis of the cash liquidity crisis in GS and to assess the proposal for a local digital currency through its economic, institutional, and political dimensions, including its potential impact on the unity of the Palestinian financial system. It further situates this proposal within a set of alternative policy options and concludes with practical recommendations aimed at supporting decision-makers and relevant institutions, strengthening financial stability, and preserving the integrity of a unified national financial framework.
| Click here to download: >> Academic Paper: Cash Liquidity Crisis and the Risks of Transitioning to Digital Currency in Gaza Strip: The Implications of Financial Separation for the Palestinian Financial System … Dr. Raed Muhammad Hillis (Arabic)  (22 pages, 2.3 MB) |
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