In the Israeli-occupied West Bank, too much cash is breaking the economy

RAMALLAH, West Bank (AP) — Picture this: A gas station customer pulls out a wad of bills to pay for a fill-up. The cashier refuses the money, explaining that the station’s bank has stopped accepting notes and coins as deposits because it already is drowning in cash.

In most places, cash is king. But in the Israeli-occupied West Bank, having too much is gumming up the machinery of daily life. The Palestinian banking system has more Israeli shekels than it can manage. As a result, paper money has gotten harder for residents to spend and for businesses to put into their accounts.

The excess liquidity stems from a conflict between the Bank of Israel and the Palestinian Monetary Authority, which oversees Palestinian banks and financial institutions. Israel limits the amount of physical currency it takes back from the West Bank. Palestinian officials say the cap has not kept pace with growth and is one mechanism used to keep the territory in a state of economic crisis.

Unlike in Gaza, where years of an almost total blockade have caused cash shortages, banks in the West Bank are running out of vault space to store stacks of shekels. With Bank of Israel refusing to accept more notes and coins, commercial banks can’t convert the money into electronic balances to pay suppliers or process transfers on behalf of their customers.

“The banks have been shackled” in their ability to deal with the crisis, Mohammad Manasra, the deputy governor of the Palestinian Monetary Authority, said in an interview with The Associated Press. “What is being practiced in the West Bank is economic warfare.”

Central banks in most countries take back cash from commercial banks and credit them electronically so they can settle payments and meet customers’ needs. But in the occupied West Bank — where Palestinians have no say over monetary policies guiding the shekel — the economy runs differently.

The territory has relied predominantly on the Israeli shekel for decades and depends on Israel to facilitate trade, collect taxes and process payments for imported goods under agreements dating to the 1990s. A surfeit of cash accumulates because the Palestinian economy runs almost exclusively on physical currency, and more enters from Israel than can exit.

Why? Employers in Israel and its settlements pay Palestinian laborers in cash, and Palestinian citizens of Israel often purchase goods like cigarettes and fuel in the West Bank, bringing in even more shekels. As more cash flows in, the surplus trapped inside Palestinian banks grows, neither earning interest nor getting turned into loans, investments and bill payments.

Israel’s cash transfer limit from the West Bank’s banking system is 18 billion shekels ($5.9 billion) a year. Banks now accumulate an estimated 30 billion shekels a year, said Moayad Afaneh, an economist who has advised the Palestinian Authority.

In the past, Israeli officials expressed reluctance to accept more, citing concerns that returned money could be linked to laundering, tax evasion or terrorism.

Bank of Israel said in a statement that it follows the current government’s policy on how many shekels to accept but that fewer Palestinians have worked in Israel since the war in Gaza started, thereby reducing the cash entering the West Bank.

Israeli Finance Minister Bezalel Smotrich ‘s office did not respond to requests for comment but in September 2025 Smotrich threatened to “use all of the tools” at his disposal to prevent the creation of a Palestinian state, including “economic strangulation.”

Israel has imposed a series of measures that have hobbled the West Bank’s economy since Hamas-led militants attacked in October 2023, starting the war in Gaza.

It revoked most work permits for Palestinians who used to work in Israel, cutting off a major source of income in the occupied territory. It has withheld tax and customs revenue collected on behalf of the Palestinian Authority, which in turn has been unable to fully pay public sector workers — including teachers and hospital staff — for more than a year.

With growing needs for vault space, banks are having to pay to store and insure cash they’re unable to offload. They’re accepting less from businesses and households, which in turn have to find alternative ways to store cash safely.

The excess shekel problem is “directly affecting the government’s ability and the private sector’s capacity to continue providing services to major industrial sectors and the Palestinian people,” Manasra said.

As an example, he noted most of the West Bank’s fuel and electricity is imported from Israel or purchased from Israeli utilities. When banks have too much of their assets tied up as physical cash, they don’t have the funds when their clients — like the Palestinian Authority or West Bank cities — need to transfer payments to import fuel, water and electricity.

Fears of looting by Israeli soldiers conducting increasingly common home raids have made the problem worse, Afaneh, the economist, said. Palestinians are depositing more into banks because they fear soldiers will confiscate it, claiming suspiciously large sums could be used for illicit purposes or terrorism.

Having too much cash on hand also hurts the banks’ bottom lines because they can’t lend out money like most banks, which today do so electronically. A 2022 International Monetary Fund study estimated excess cash reduced Palestinian banks’ profits by about 20%, a figure Afaneh said is likely much higher today.

Inside the Ramallah headquarters of the Al-Huda Group, cigarette smoke and tea steam drift through an office where clerks feed banknotes into machines that spit out neat stacks of counted bills. The company operates filling stations, convenience, grocery and home improvement stores, car washes and other businesses that collect tens of millions of shekels each month.

Stockpiles of money that cash-based businesses can’t deposit because the banks are full has made routine operations and transactions more difficult and expensive, said Hussni Jaber, the executive manager of the Al-Huda Group.

To make electronic payments to Palestinian and foreign suppliers, for example, some businesses have resorted to taking out loans or buying other currencies while also paying more to keep their overabundance of cash on hand safely stored, Jaber said.

When they can’t pay their suppliers, some gas stations have to stop filling their pumps. The Palestinian Authority in a statement pointed to the issue when gas stations temporarily closed on Saturday.

Last month, a number of gas station owners coordinated a 30-minute strike across the West Bank, including the 22 operated by Al-Huda, to draw attention to the cash crisis. It has done little to prompt a response.

With their earnings stuck outside the traditional banking system, business leaders fear the cash glut will eventually prevent West Bank companies from being able to import fuel, food and medical supplies from Israel or elsewhere abroad, Jaber said.

“All sectors will collapse if the cash problem is not resolved,” he said.

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Imad Isseid contributed reporting from Ramallah, West Bank.