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US Treasury Secretary Janet Yellen has warned Israel not to sever its banks’ ties with Palestinian lenders, saying its “threats” to cancel a vital waiver between financial institutions would deprive the Palestinian Authority of essential services and sources of income.
U.S. officials believe Israel’s ultranationalist Finance Minister, Bezalel Smotrich, will not renew the annual waiver when it expires on July 1.
“I am particularly concerned about Israel’s threats to take actions that would lead to Palestinian banks being cut off from their Israeli correspondent banks,” Yellen said Thursday.
The waiver makes it easier to pay for $8 billion in imports from Israel, according to U.S. government data. These include essential services, such as electricity and water, as well as food. Banking ties also allow companies in the occupied West Bank to sell exports worth around $2 billion to foreign customers.
Canceling the waiver would shut down much of the Palestinian economy in the West Bank, officials said.
The issue is expected to be discussed at a meeting of G7 finance ministers and central bank governors in Stresa, Italy, in the coming days.
Yellen said the U.S. Treasury had urged the Israeli government to take steps “that would strengthen the Palestinian economy and, I believe, Israel’s own security.”
“We and our partners must do everything possible to increase humanitarian assistance to Palestinians in Gaza, reduce violence in the West Bank and stabilize the West Bank economy,” she added.
US National Security Advisor Jake Sullivan said in Washington on Wednesday that Israel’s decision to withhold funds from the Palestinian Authority, which administers limited parts of the West Bank, was “wrong” and “they should continue to flow in.”
“It is a mistake from a strategic point of view, because withholding funds destabilizes the West Bank,” he said. “And I think it’s a mistake to deny funds intended to provide basic goods and services.”
The United Kingdom shares Washington’s concerns, according to British officials.
The Palestinian territories do not have their own currency and rely on the Jordanian dinar and Israeli shekel, as well as the US dollar. The economy officially uses the shekel, leaving the Palestinian Monetary Authority – the central bank – and its lenders dependent on the Bank of Israel for access to reserves and financial services.
Without this waiver, Israeli companies with business ties to the Palestinian Authority would also not be able to deposit Palestinian checks or receive payments from Palestinian banks.
Before Hamas’ deadly attack on Israel on October 7 and the war in Gaza that followed, the waiver had been renewed annually since 2016.
Since its introduction, U.S. Treasury officials have provided Israel with a letter assuring it that its banks would not be the target of terrorism financing allegations due to their relationships with Palestinian entities.
Additional reporting by Felicia Schwartz
