JERUSALEM: Israel extended for one year a waiver allowing Israeli banks to work with Palestinian ones just days before it was due to expire, threatening to paralyze Palestinians financial institutions.
The extension was approved Thursday during a security cabinet meeting ahead of expiration of the waiver at the end of the month, a spokesman for far-right Finance Minister Bezalel Smotrich told AFP.
Smotrich had threatened in May to cut the vital connection between Israel and Palestinian banks in the occupied West Bank in retaliation for the recognition of the State of Palestine by three European countries.
Smotrich, who lives in a West Bank settlement and advocates for the full annexation of the territory occupied by Israel since 1967, had told Prime Minister Benjamin Netanyahu that he “did not intend to extend” Israel’s annual guarantees to banks in the West Bank.
In exchange for trade-offs on the development of Israeli settlements in the West Bank, Smotrich later agreed to extend the guarantee, but only for a few months.
Since June 30, the waiver was renewed on several occasions for different lengths of time, the last of which was to last a month until November 30.
Until then, Smotrich had raised concerns over the financing of armed groups via Palestinian banks to justify the short extension renewals.
The Palestinian financial and banking system is dependent on the regular renewal of the Israeli waiver.
It protects Israeli banks from potential legal action relating to transactions with their Palestinian counterparts, for instance in relation to financing terror.
The waiver had previously been renewed annually, until Hamas’s unprecedented October 7, 2023 attack sparked the war in Gaza.
In July, G7 countries urged Israel to “take necessary action” to ensure the continuity of Palestinian financial systems.
It came after US Treasury Secretary Janet Yellen warned that “to cut Palestinian banks from the Israeli counterparts would create a humanitarian crisis.”
The overwhelming majority of exchanges in the West Bank are in shekels, Israel’s national currency, because the Palestinian Authority does not have a central bank that would allow it to print its own currency.