During a phone call with Bank of Israel head Amir Yaron on Monday, U.S. Treasury Deputy Secretary Wally Adeyemo conveyed Washington’s concerns over proposals by Israeli Finance Minister Bezalel Smotrich to nix ties with Palestinian Authority banks.
Adeyemo voiced the Biden administration’s “concern about threats by some within the Israeli government to sever correspondent banking relationships between Israeli and Palestinian banks and insisted that these should be extended for at least a year,” per a U.S. Treasury readout of the call.
Adeyemo was said to have stressed that extending a waiver that allows Israeli banks to do business with their Arab counterparts is “critical” to preventing an economic crisis in Judea and Samaria. He added that it strengthens Israel’s security “by countering financial flows funding terror groups.”
Adeyemo “stressed that an economically stable West Bank strengthens Israel’s own security,” according to the U.S. readout of the conversation.
Five weeks ago, the P.A. claimed that Israeli banks stopped accepting shekel cash deposits from their Palestinian counterparts. The Aug. 21 statement claimed Judea and Samaria banks would be unable to finance trade operations between Palestinians and Israelis in a matter of “days.”
In accordance with 1990s accords signed between Israel and P.A. leader Mahmoud Abbas’s Palestine Liberation Organization, the shekel is the primary currency in Judea and Samaria, alongside the Jordanian dinar.
The P.A. announcement warned of “imminent consequences on all aspects of life” should Israeli banks continue to decline to accept the Israeli shekel banknotes that have accumulated at Palestinian banks.
At the time, the Bank of Israel and several large financial institutions in the Jewish state declined to comment to JNS on Ramallah’s allegations.
Three months ago, Smotrich extended a waiver shielding major Israeli banks with relations to the P.A. from lawsuits stemming from charges of supporting Palestinian terror.
The waiver, which the finance minister signed for a period of four months, extends the indemnity to Israeli correspondent banks that transfer money to P.A. fiscal institutions throughout Judea and Samaria.
The decision to extend the indemnity waiver was reportedly made as a tradeoff for Israeli Prime Minister Benjamin Netanyahu’s approval to retroactively legalize several Jewish outposts in Judea and Samaria.
Earlier this year, Smotrich threatened to topple the P.A.’s economy in response to Ramallah’s push for unilateral statehood and support for the International Criminal Court case against the Israeli leaders.
Ramallah is “working against Israel with political terrorism and promoting unilateral measures around the world,” he reportedly told fellow ministers. “If this causes the P.A. to collapse, let it collapse.”
U.S. Treasury Secretary Janet Yellen vowed to use “all diplomatic efforts” to thwart Smotrich’s intentions. “I’m particularly concerned by Israel’s threats to take action that would lead to Palestinian banks being cut off from their Israeli correspondent banks,” she stated on May 23.
“These banking channels are critical for processing transactions that enable almost $8 billion a year in imports from Israel, including electricity, water, fuel and food, as well as facilitating almost $2 billion a year in exports on which Palestinian livelihoods depend,” she declared.
