Palestine is on the cusp of getting its own modern banking system and the Palestinian pound may return. Monocle talks to the governor of the Palestine Monetary Authority, Jihad al-Wazir, about changes being made to the economy.
Palestinians do not have their own currency. From the West Bank to Gaza, purses and wallets are filled with Jordanian dinar, euros, dollars and Israeli shekels. Not surprisingly, many people want to revive their old currency – the Palestinian pound – from a time before their country came under Israeli control.
As governor of the Palestine Monetary Authority, Jihad al-Wazir is tasked with developing a formal Palestinian economy even before the establishment of a formal Palestinian state. The son of Fatah-founder Khalil al-Wazir (AKA Abu Jihad), al-Wazir’s Ramallah-based team is the Palestinian Authority’s Federal Reserve-to-be, charged with privatising banks, combating money laundering and encouraging economic growth. Meanwhile, a new Central Bank building is rising in Ramallah. Al-Wazir is also the man considering the return of the Palestinian pound. Monocle talked with him about fiscal policy and politics.
Monocle: There’s been increasing talk about the return of the Palestinian pound. Can we expect its revival?
Jihad al-Wazir: As much as it would be an emotional achievement to re-establish the pound, this is an eventual – and not necessarily immediate – goal. Our main priority is establishing a monetary system best suited to economic development. It’s easy to print pounds but we must ensure that people actually have the confidence to use them – and replace the shekels and euros in their pockets. We’ve seen the mistakes other small or developing countries have made with their own currencies and we’re keen not to repeat them. We don’t want to find ourselves in a situation like Zimbabwe, with bank notes covered in unending zeros. We see Palestine more like Hong Kong or Singapore – a strong, open and robust economy.
M: How can you ensure the stability of a Palestinian pound?
JW: We’re exploring a series of options; everything from simply dollarising the economy to pegging the pound to a basket of currencies – perhaps the shekel, dollar and euro. Crucially, we’re hard at work developing forecasting models to predict input and output capabilities in the Palestinian economy to make the right kinds of planning decisions.
M: Clearly the ongoing Israeli occupation hinders this process. What are some of the pressures you face developing a currency, formal Central Bank and economic policies while under Israeli control?
JW: There are many factors but the most critical is restriction of movement. The existing system of controlling roads and crossing points is a major obstacle to economic development. Palestine has the potential for double-digit economic growth but we are an export-oriented economy whose potential is wasted because we cannot get our goods to market. The capacity is certainly there – our growing season is longer than in Europe – but lengthy security inspection delays make it impossible for importers or wholesalers to have confidence in Palestinian partners.
M: You’re friends with Stanley Fischer, governor of the Bank of Israel. How important is the relationship with Israel for the success of Palestine’s economy?
JW: We already have a strong working relationship with the Central Bank of Israel because we are independent – outside of the political goings-on between the two sides. Already almost $5bn [€3.8bn] is transferred each year between ourselves and Israel. But any eventual peace treaty and establishment of two independent states must be based on transforming an inequality-based relationship into a true partnership of equals.
M: Can economic reforms be implemented in Gaza, which is controlled by Hamas?
JW: We’re charged with regulating banking in the West Bank and Gaza, where we’ve overseen the transfer of over $5bn [€3.8bn] since the split [in 2007]. But the biggest issue with Gaza and Hamas is money laundering and the transfer of funds to entities on [international terror] lists. We’ve established strong controls to build a firewall between the banking system and Hamas. Hamas is a cash-based culture; they’re not used to operating within conventional banking sectors.
M: Is there a strong role for the Palestinian diaspora in reviving the economy?
JW: Palestinians are certainly returning to Palestine, particularly from the Persian Gulf. But we’re also discovering thriving Palestinian communities in unlikely places such as Chile. So we must build stronger connections with these groups. It’s happening – such as with new luxury villa projects aimed at diaspora residents who want to retire in Palestine.
M: Do you think that the US and other western nations have a responsibility to ensure the success of a Palestinian economy?
JW: I do. And they are. But for the moment the global donor community is really just compensating for the damage Israel is doing to our economy. If you look at our economy prior to 2000 [the beginning of the second Intifada], we had a balanced budget and annual growth of 9 per cent. But a decade of Intifada – movement restrictions and [security] walls – has made it impossible for our economy to fulfil its potential. Palestine is an important emerging market. We’ve been held back – foreign investors have often stayed away because of the risk premium associated with the country. But the fears are overstated because peace process or no peace process the Palestinian Stock Exchange is always open for business.
1963 Born in Gaza, son of Khalil al-Wazir, founder of Fatah Party
1986 BSc in electrical engineering from Marquette University, Wisconsin
1990 Communications engineer and consultant; Rochester, New York and Milwaukee, Wisconsin
2001 PhD in business administration from Loughborough University, UK
2004 Deputy minister of finance
2005 Becomes member of the board and then acting minister of finance, Palestine Monetary Authority
2006 Deputy governor, Palestine Monetary Authority
2008 Appointed governor and chairman of the board of the Palestine Monetary Authority
1 Big items (cars, homes, etc) are bought with euros, dollars and Jordanian dinar in Palestine, daily things with Israeli shekels.
2 One Palestinian pound was equal in value to £1 in the Mandate era.
3 One Mandate-era Palestinian pound would now be worth roughly $145.
4 The last time the Palestinian pound was close to reappearing was in 2000 between the first and second Intifadas.
5 Yasser Arafat is almost certain to appear on a revived Palestinian pound.
6 The design is likely to be decided via a competition.
7 Foreign national banks or firms would probably mint the Palestinian pound.
8 It would be held in the Palestinian Central Bank being built in Ramallah.
9 A mass public-education campaign would guard against price gouging and artificial inflation.
10 The Palestinian pound could become part of a larger, Levantine-based common currency.