The Palestinian economy suffers from all the challenges resulting from occupation; amidst this, Bitcoin and cryptocurrencies present economic opportunities for the Palestinian people.
Section One: An Overview of the Economic Situation in Palestine
This report aims to examine and introduce the economic situation in Palestine and the opportunities that Bitcoin and cryptocurrencies provide for the Palestinian people. In this first section, we will provide a brief overview of the current economic status. In the next issue, we will discuss the specific topic of crypto-assets and their importance for Palestine.
A country’s monetary and economic system is one of the most important pillars of national sovereignty. Beyond its key role in the economy, the currency is also part of a country’s national identity. In the case of Palestine, the banking system, customs, taxation, asset management, the people’s savings portfolio, tradable assets, the capital market, and many other tools and conditions reflect the profound nature of the occupation. While the economic dimensions of the occupation have developed following the military and political dimensions, it would not be an exaggeration to say that they are equally effective in Israeli domination. More importantly, breaking this domination in economic dimensions can accelerate the political and military aspects of resistance. In this article, I will discuss the economic situation in Palestine, detailing the monetary and taxation systems and the banking conditions of this country, as well as methods to empower the economy of the Palestinian people, particularly through Bitcoin and cryptocurrencies. These points have been less addressed by those interested in the Palestinian cause, yet they can simultaneously have a decisive impact on the success of the Palestinian resistance.
A Look at the Financial and Economic Structure of Palestine
The operations on October 6, 2023, by the Palestinian resistance shattered many traditional beliefs about the power, invulnerability, and dominance of the Israeli apartheid regime. However, if you examine the wallets of Palestinian fighters, you will likely find no currency except the “Israeli Shekel.” In other words, despite having two governmental structures in the West Bank and Gaza, Palestine lacks a national currency.
Decades of occupation have resulted in the absence of what is defined as a modern economic system and economic sovereignty in all countries worldwide in Palestine. What exists today as Palestine’s economic structure is an incomplete and limited version of an economic system established as an appendix to the second Oslo Accord, known as the “Paris Protocol.”
The Paris Protocol, or the Protocol on Economic Relations, includes agreements between the Palestine Liberation Organization (PLO) and Israel regarding economic matters. This protocol can be understood to contain two important elements. First, according to this agreement, Palestine has accepted not to have a national currency, with the official currency in Palestinian territories being the Israeli Shekel. The other element of this agreement concerns the taxation system and the collection of tax and customs revenues for the Palestinian Authority. Under the established process, the customs tax revenues of the Palestinian Authority are collected by Israel, which deducts fees before paying the remaining amount to the Palestinian Authority. Note that Palestine does not have the right to control its borders with Egypt in Gaza or Jordan in the West Bank; all exports, imports, and customs in Palestine are under the control of Israel.
Additionally, the income tax of Palestinian workers employed in Israel, the sales tax on Palestinian goods or services in Israel, and the value-added tax for purchases from Israel by Palestinians are all collected by Israel. Palestine must also comply with tax rates and value-added tax tariffs set by Israel within its territory. Israel also collects the income tax within this territory. Generally, for the taxes collected by Israel, a 25% and a 3% fee is deducted as Israel’s share and commission from the total amount, with the remainder paid to the Palestinian Authority. For years, after Hamas’s victory in Gaza, Israel has not been paying the share of Gaza from these taxes. Yet, the amount paid to the Palestinian Authority, which in the best years reached 160 million dollars a month, accounts for about 70% of the budget of the Palestinian Authority.
Beyond the unfair taxation situation, other economic dimensions of Palestine are also under Israeli occupation, just like the land itself. The integration of the Palestinian economy into the Israeli economy is so extensive that it is said that over 70% of international aid to Palestine is absorbed by Israeli goods and services and is effectively injected into the Israeli economy.
Even if, hypothetically, peace were to be established today and independent states of Palestine and Israel were formed, Palestine would be a country with a population of 5 million (excluding migrants and refugees) and a GDP of about 17 to 20 billion dollars. In contrast, Israel would have about 9.5 million people and a GDP of about 500 billion dollars. This simple comparison highlights the dire economic situation in Palestine and the profound impact of occupation on the economy of this nation.
Over 70% of international aid to Palestine is absorbed by Israeli goods and services and is effectively injected into the Israeli economy.
The Banking Industry in Palestine
Before the Nakba and the establishment of the occupying regime, Palestine had a currency known as the Palestinian pound. This currency, which was in circulation from 1927, is one of the historical symbols of a country named Palestine before the establishment of Israel. Due to limitations and the lack of a national currency, Palestine does not have a central bank; the Palestine Monetary Authority carries out its functions. This institution has made significant efforts to establish an international money transfer network and oversee Palestinian banks. It has also tried to reduce Palestinians’ dependence on the Israeli Shekel by promoting foreign currencies, such as the Jordanian dinar, Egyptian pound, euro, and US dollar, as much as possible in the absence of a national currency.
The Palestine Monetary Authority has also made notable efforts in domestic payment networks, credit verification, and fintech. In the fintech sector, it has activated a sandbox for Palestinian startups to help expand this field.
On the other hand, the banking situation in Palestine regarding the number and coverage of banks is not bad. More than ten commercial banks operate in Palestine, with the “Bank of Palestine” at the forefront. Among these banks, several Kuwaiti, Jordanian, and Emirati banks also have operations in Palestine. The main activity of these foreign banks in Palestine is related to money transfer services. Additionally, in the realm of international payments, Visa and MasterCard have contracts with several Palestinian banks and provide services that are somewhat limited compared to standard practices; however, PayPal does not operate in Palestine.
Despite the extensive banking network in Palestine, the main issue remains Israel’s ongoing effort to keep the economy under occupation, which has resulted in the financial and banking service market being unable to play a role in creating a platform for development in Palestine beyond meeting basic needs.
Capital Market and Stock Exchange in Palestine
Palestine has an active stock market that was established in 1995. This market has about 50 listed symbols, with a total value of approximately $3 billion. An interesting point about this market is that its official currency is not the Israeli Shekel; instead, companies are listed based on the valuation of the Jordanian dinar or US dollar, and their stocks are traded in these currencies. One notable aspect of the Palestinian stock market is that the rate of return on investment (ROI) typically exceeds the inflation rate.
E-commerce in Palestine
Despite the high internet penetration rate in Palestine, the absence of filtering, sanctions, and governance restrictions do not provide much room for the small Palestinian economy to grow in e-commerce and the digital economy. In 2019, a thousand Palestinian business pages were identified on Instagram and Facebook. Fortunately, social media networks are not filtered in Palestine, and unreasonable restrictions have not trapped the digital economy. By 2019, just over 70% of the Palestinian population in the West Bank and Gaza Strip were internet users; however, of this number, only 9.4% in the West Bank and 5.5% in Gaza used the internet for online shopping.
In 2019, a thousand Palestinian business pages were identified on Instagram and Facebook. Fortunately, social media networks are not filtered in Palestine, and unreasonable restrictions have not trapped the digital economy.
The low adoption rate of e-commerce can be attributed to several reasons. On one hand, there is a lack of preparedness and availability of services and goods offered by Palestinian businesses. On the other hand, there is limited adoption of online payment methods, such as credit cards, among the population. Even among those who ordered goods or services online, 86% opted for cash on delivery (COD), and the share of online payments in orders is negligible. Nonetheless, in recent years, signs of rapid growth in the digital economy in Palestine have been observed. For example, the number of online transactions in 2019 experienced a 40% increase compared to the previous year.
Macroeconomic Indicators in Palestine
It is important to note that the economic conditions in the two Palestinian territories that are not under direct occupation—namely the West Bank and the Gaza Strip—are not the same. Generally, economic conditions and other indicators are worse in the Gaza Strip than in the West Bank, due to the stricter restrictions imposed by the occupying regime in that area. Sometimes, the existing statistics are derived only from assessments of the conditions in the West Bank.
In recent years, Palestine’s gross domestic product (GDP) has grown by 3%. The unstable conditions caused by occupation have had a direct impact on the economy, with Palestine sometimes experiencing negative growth and at other times growth of 20%.
In the crucial indicator of GDP per capita (purchasing power parity), Palestine ranks 134th in the world, with a figure of $5,722, considered low. In comparison, the occupying regime’s GDP per capita is $44,272, placing it 33rd in the world.
The employment situation in Palestine is not good at all, with the unemployment rate fluctuating between 24% and 28% over the past decade. The recent war is expected to lead to a sharp decline in economic indicators, particularly employment. The latest assessment shows Palestine’s trade balance to be negative by $558 million.
Regarding the inflation rate, Palestine has experienced a maximum inflation rate of 5% over the past decade, although in the early years of the establishment of the Palestinian Authority, inflation rates around 25% were also observed.
It should be noted that the restrictions of occupation have limited or destroyed many economic opportunities in Palestine. For instance, despite the immense religious and tourism potential of Al-Aqsa Mosque, Palestine is deprived of tens of millions of Muslim tourists.
Overall, the economy of Palestine suffers from all the problems stemming from occupation. It is a country that does not have the right to its own national currency, national army, tax collection, or freedom of trade and tourism, with all the occupying power focused on suppressing the people and their livelihoods. Despite this, the performance of certain sectors of the government, such as the Palestinian Monetary Authority and the stock exchange, can be regarded as commendable, especially when compared to the painful examples of our central bank and stock exchange in Iran.
