Summary
The monetary authority the Palestinian Authority was to establish in the Areas under Article IV of the Paris Protocol (1994): regulator of monetary policy and of the banking system, the Authority’s sole financial agent and holder of its foreign currency reserves, and lender of last resort — but without a Palestinian currency, the New Israeli Sheqel remaining legal tender in the Areas and the Authority’s conversion of excess sheqels into foreign currency capped by a formula administered with the Bank of Israel (Protocol on Economic Relations (Paris Protocol), Annex IV to the Gaza-Jericho Agreement (29 April 1994), PDF p.7-11).
Details
- The PMA has the powers and responsibilities for the regulation and implementation of monetary policies within Article IV’s functions; it is the Palestinian Authority’s official economic and financial advisor, its and the public sector entities’ sole financial agent locally and internationally, and the sole depository of their foreign currency reserves including gold; it is lender of last resort for the banking system in the Areas, authorizes foreign exchange dealers, and controls foreign exchange transactions within the Areas and with the rest of the world (PDF p.7).
- Its banking supervision department, predicated on international principles and standards, “especially on the principles of the “Basle Committee””, regulates all banking activities including foreign activities, licenses locally formed banks and branches, subsidiaries, joint ventures and representative offices of foreign banks (approving controlling shareholders), and supervises and inspects banks (PDF p.7-8).
- The PMA relicenses each of the five branches of Israeli banks operating at the signing in the Gaza Strip and the West Bank once under Palestinian jurisdiction, under foreign-bank rules based on the “Basle Concordat”; other Israeli banks apply to it on equal terms with other foreign banks, provided the same applies to Palestinian banks in Israel, with home/host supervision arrangements between the PMA and the Bank of Israel (BOI) (PDF p.8).
- The PMA determines liquidity requirements on deposits in Areas banks — on NIS deposits “not be less than 4% to 8%, according to the type of deposits”, with corresponding changes when Israel’s requirements change by over 1% — supervises their implementation, holds the required reserves, sets non-compliance penalties, and runs a discount window and a clearing house that clears with the Israeli clearing house on a same-working-day basis (PDF p.9).
- The PMA may convert excess NIS at the BOI only up to the Article IV para 16 formula amount (estimated Israeli imports from the Areas paid in NIS, less rebated taxes, minus estimated Israeli exports to the Areas paid in NIS, less rebated taxes, plus net foreign currency previously converted into NIS as recorded in the BOI Dealing Room); the PMA and BOI meet annually to determine and semi-annually to adjust the convertible amount, conversions are at market rates through the BOI Dealing Room, and the BOI is not obliged to convert more than 1/5 of the semi-annual amount in any single month (PDF p.9-10).
Related pages
Paris Protocol, Palestinian Authority, Protocol on Economic Relations (Paris Protocol), Annex IV to the Gaza-Jericho Agreement (29 April 1994), Customs union