ABSTRACT
The PMA has made significant progress in establishing effective regulation and banking supervision, and overseeing the payments system in Palestine. However, it does not as yet operate a monetary policy, essentially because the PMA cannot issue a national currency without Israeli agreement, and because there is as yet no Palestinian state. The currencies used in the Palestinian Territory (the West Bank and Gaza; PT) were stipulated in Annex IV of the Paris Protocol on Economic Relations between the Government of Israel and the PLO (part of the so-called Oslo agreements) signed in 1994. The Protocol laid down that ‘the New Israeli Shekel (NIS) shall be legal tender and will serve as means of payment in the Palestinian Territory’. The Oslo accords also allowed the US dollar and the Jordanian dinar to function as legal tender. About 50 per cent of bank customer deposits in Palestine are in US dollars, around 22 per cent are in Israeli shekels, about 26 per cent in Jordanian dinars, and the rest are in other currencies. The US dollar and the Jordanian dinar (which is pegged to the dollar) are the primary deposit currencies, while the Israeli shekel is used for most retail transactions. As Israel is the largest trading partner of the Palestinian Territory, transactions between banks operating in the PT and those in Israel were about 20 billion shekels in 2007.
