West Bank and Gaza: Selected Issues
IMF Staff Country Reports, September 16, 2022
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- West Bank and Gaza: Selected Issues
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Bibliographic details
- Published: September 16, 2022
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400220166.002
Summary findings
- For more than a decade, commercial banks in West Bank and Gaza (WBG) have struggled to manage buildups of excess physical Israeli shekel cash.
- Banks elsewhere typically manage the amount and currency composition of physical cash they hold in their vaults through transactions with other commercial banks and central banks.
- The two Israeli banks that currently offer correspondent services to banks operating in WBG no longer offer them cash services, citing money laundering and terrorism financing (ML/TF) concerns.
- The Bank of Israel (BoI) has imposed limits on the amount of shekel coins and notes it accepts back from Palestinian banks.
- Limits on cash repatriation and the loss of correspondent cash services have long hindered liquidity management and been a drag on the profitability of Palestinian banks.
- Periodic large increases in excess cash in recent years have created additional risks and raised the costs to the Palestinian banking system.
Background and context
- Subject labels: Crime, Financial institutions, Financial markets, Financial services, International organization, Monetary policy.
- Keywords: Anti-money laundering and combating the financing of terrorism (AML/CFT), cash in West Bank, cash shipment, Commercial banks, Correspondent banking, excess cash, Financial inclusion, Global, Middle East, North Africa, Palestinian banking system, shekel cash.
Risks and operational implications
- Excess physical shekel cash buildup undermines routine liquidity management practices used elsewhere (interbank and central bank transactions).
- ML/TF-related withdrawal of correspondent cash services by the two Israeli correspondent banks has reduced options for Palestinian banks to rebalance currency holdings.
- BoI limits on accepting shekel coins and notes back from Palestinian banks constrain cash outflows back to issuer, increasing on-balance-sheet cash holdings.
- Periodic large increases in excess cash raise financial-system risks and increase operating costs for the Palestinian banking system.
Content in this bundle
- West Bank and Gaza: Selected Issues; September 16, 2022