chapter  3
21 Pages

Alternative currency arrangements


There are a number of alternative currency arrangements and monetary frameworks from which a sovereign Palestinian state could choose. The first is a continuation of the status quo, under which three different currencies are used in the WBGS-the new Israeli shekel (NIS), the Jordanian dinar (JD) (used more in the West Bank than in Gaza) and the US dollar (USD)—with the former being used for most transactions, especially retail ones, and the latter two used more for savings deposits and for some durable goods transactions (Hamed 1999); while the Palestinian Monetary Authority supervises the banking system but has no lender of last resort (LOLR) function. A second arrangement would be the creation of a new Palestinian currency, with the currency anchored-either under a currency board or under a fixed but adjustable parity-to the NIS, the JD, the euro or the dollar or, conceivably, some other currency or basket of currencies. A third alternative would be a currency union with Israel, while a fourth would be a currency union with Jordan. Finally, a new currency with a more or less flexible exchange rate and the ability to design and operate an independent monetary policy could be considered.