The Palestinian Monetary Authority is exploring the potential for a central bank digital currency (CBDC), reported Bloomberg. However, the big question is which fiat currency would be used? The Israeli shekel is the primary currency in circulation, but the US dollar and Jordanian dinar are also used.
In the 90s the Paris agreement between Israel and Palestine required the Israeli shekel to be the primary means of payment. Based on the accord, Israel also collects import taxes on behalf of Palestine for goods destined for the regions and many Palestinians earn shekels working in Israel. While the agreement is still in force, it was originally intended to last until 2016.
In the meantime, changing Palestine’s currency is a topic that’s raised regularly. However, as reported by Arab News in 2018, it comes with significant risks of economic destabilization. However, there are also substantial foreign aid inflows in euros and dollars. For example, this week, the European Investment Bank offered $425m in debt and risk-sharing instruments.
If more payments become digital, potentially the use of the shekel could decline. It may be no coincidence that the Palestinian Monetary Authority launched a promotion of the use of e-payments this week.
Meanwhile, Israel is exploring a digital shekel, although it predicts a less than 50% probability of one going live. In the last few weeks, several African countries have also said they’re conducting CBDC trials, including Nigeria, Ghana and South Africa.
