Palestinian Currency and the Path to Economic Independence

The Palestinian currency, the Jordanian dinar, has been the official currency in the Palestinian territories since 1994.

Prior to this, the Palestinian Monetary Authority (PMA) was established in 1993 to manage the Palestinian economy and oversee the introduction of a new currency.

The PMA has been working to increase financial inclusion and stability in the region, with a goal of achieving economic independence.

However, the use of the Jordanian dinar has its limitations, as it's not a Palestinian-specific currency, and the Palestinian economy remains heavily reliant on foreign aid.

The Palestinian currency has a rich and complex history.

Before World War I, the Ottoman lira was used in Palestine, but it was eventually replaced by the Egyptian pound and the British gold sovereign.

In 1927, the Palestinian government introduced the Palestine pound, which was pegged one for one to the British pound sterling and backed by reserves held in London.

A fresh viewpoint: Clearxchange Capital One

The Palestine pound was used in Palestine until 1948, when the British Mandate came to an end and the Israeli Shekel was introduced in areas occupied by Israeli forces.

The Jordanian Dinar and the Egyptian pound were also used in the West Bank and Gaza Strip, respectively.

Today, the Israeli Shekel is widely used in the West Bank and Gaza Strip, especially since the signing of the Paris Protocol in 1994, which made the Palestinian economy dependent on the Israeli economy.

You can easily exchange your money to NIS at banks, exchange agencies, and ATMs, which are readily available in most places in Palestine.

Banks are open from 8 A.M. to 3 P.M., and ATMs are open 24 hours.

Most stores do not accept credit cards, so it's best to have enough cash on you for your entire trip.

You can also send or receive money quickly at Western Union offices, which are numerous in Palestine.

For up-to-date exchange rates, visit the website http://www.xe.com/currencyconverter/.

Check this out: Open Finance

The Palestinian currency system is based on the Palestinian shekel, which was introduced in 1927. It was pegged to the British pound at a rate of 1 pound to 1.46 shekels.

The Palestinian shekel was replaced by the Israeli new shekel in 1985, but the Palestinian Authority reintroduced its own currency, the Palestinian shekel, in 1994. It's been pegged to the US dollar at a rate of 1 dollar to 3.25 shekels.

Today, the Palestinian shekel is widely used in the West Bank and Gaza Strip, and it's accepted by many local businesses and vendors.

Broaden your view: Disney 60 Billion Dollar Investment

The West Bank and Gaza is a small open economy, with a population of just under 3 million and a GDP of about $4.2 billion in 1999. This makes it roughly one twenty-fifth of Israel's GDP.

Its small size affects its ability to influence world prices of its exports and imports. The West Bank and Gaza's exports and imports equal almost 100 percent of its GDP, a high level by international standards.

You might like: Class B Shares Private Company

The economy is also heavily reliant on foreign aid, with disbursements amounting to roughly 13 percent of GDP. Labor income from Israel and the settlements equaled almost 20 percent of GDP before the recent crisis.

The West Bank and Gaza's balance of payments flows are very large relative to the size of the economy. Here are some key economic indicators for the West Bank and Gaza and selected economies:

The West Bank and Gaza is in a customs union with Israel, and the common external tariff is set by Israel with a few exceptions.

Expand your knowledge: Currency in Israel

The currency system in Palestine can be a bit confusing, but don't worry, I've got the lowdown.

In Palestine, the Israeli Shekel (₪) is the main currency used, and it's divided into 100 agoras or agorat (cents). The currency code for the Israeli Shekel is “NIS”, New Israeli Shekel.

You can easily convert your money to NIS at exchange agencies, banks, or even ATMs. Banks are open from 8 A.M. to 3 P.M., and ATMs are open 24 hours, making it convenient to get cash.

The Jordanian Dinar and the American Dollar are also used in some circumstances, such as buying high-value properties like houses, land, and cars. It's no problem to come to Palestine carrying these currencies.

You can find many exchange agencies and banks in Palestine, including the Arab Bank, the Bank of Palestine, the Cairo Amman Bank, and the Bank of Jordan.

A fresh viewpoint: Bank of Palestine Plc

The credibility problem is a major obstacle to introducing a Palestinian currency. It arises when policymakers cannot convince the public that they will stick to a policy that ensures the stability and convertibility of the currency.

The Palestinian policy institutions are young and lack a track record on inflation, making it difficult to establish credibility. The PA’s macroeconomic policy priorities have not been clearly articulated, which also contributes to the credibility problem.

A currency board can endow a new Palestinian currency with much-needed credibility. However, it would still be crucial for the PMA and the PA to address issues that might undermine the viability of the new currency.

If this caught your attention, see: What Is the Money Called in New Zealand

Weak fiscal discipline is a classic buster of fixed exchange rate regimes, and the PA’s fiscal position was fragile before the crisis broke out in September 2000. Improving PA fiscal management is necessary, but with a currency, weak fiscal discipline might lead the public to fear that the PA would want to resort to central bank financing of its budget deficits.

The PMA Law already allows some PMA financing of the PA’s fiscal operations, and at the end of December 2000, PA borrowing from the PMA stood at US$23 million.

Recommended read: Strong Currency vs Weak Currency

The Palestinian currency, like many others, has a complex relationship with currency boards and options. A currency board is a monetary authority that issues currency in exchange for foreign exchange reserves.

In the context of the Palestinian currency, a currency board was established to manage the Palestinian Monetary Authority's (PMA) foreign exchange reserves and issue the Palestinian shekel. This system is designed to maintain a stable currency and promote economic growth.

The PMA has implemented various options to manage the currency, including the use of currency swaps and forward contracts to mitigate exchange rate risks and stabilize the currency.

For your interest: Amazon Cash Reserves

The Palestine Currency Board was established in 1927, pegging the Palestine pound one for one to the British pound sterling. This was a currency board arrangement, backed by reserves held in London.

The initial currency issued by the Palestine Currency Board was £2.9 million, and the amount in circulation gradually increased until 1940. Currency demand rose significantly after 1941, and the stock of Palestine pounds peaked in May 1948 at around £60 million.

The Palestine Currency Board contributed to the revenues of the Palestine government almost every year of its operations. The board also shared its seigniorage with the Transjordan government, which was not obligated to do so.

After the government of Palestine ceased to exist in 1948, the seigniorage and surplus assets of the currency board were distributed to repay outstanding obligations and to the Hashemite Kingdom of Jordan. The Palestine Currency Board was closed on June 11, 1952.

The Palestine Currency Board remained the monetary authority in Jordan after Jordan's independence in 1946, and the Palestine pound remained legal tender in Jordan until 1951.

Here's an interesting read: 50 Million Swiss Francs

Having its own currency would allow the Palestinian authorities to earn seigniorage on the currency issue, a revenue stream that currently goes to the central banks of Israel, Jordan, and the United States.

The ability to devalue the currency is also a key advantage of having a Palestinian currency, as it would give the authorities a safety net in case of severe real exchange rate misalignments.

A currency board arrangement, like the one currently in place, lacks this flexibility and can lead to a loss in output through downward adjustments of wages and prices.

The Palestinian authorities can abandon the currency board arrangement and devalue the currency if the situation becomes untenable, but this would come with a currency devaluation risk that investors would demand compensation for.

This devaluation risk premium would be higher the more investors think it is likely that the option to devalue will be exercised, adding an extra layer of complexity to the currency arrangement.

Curious to learn more? Check out: Investors Bank Stock

A more sophisticated monetary framework might become desirable as the Palestinian economy develops, but it's easier to move to such a framework from a currency board arrangement than from complete dollarization.

The Palestinian Monetary Authority (PMA) could build up its policy credibility by strictly adhering to currency board principles and implementing sound fiscal policy, making it easier to adopt a more flexible exchange rate regime if deemed desirable.

It's also worth noting that it's easiest to leave a currency board or fixed exchange rate from a position of strength, or when there is pressure on the exchange rate to appreciate.

Explore further: H B L Power Share Price

The Israeli Shekel is the official currency used in Palestine, especially since the signing of the Paris Protocol in 1994, making the Palestinian economy dependent on the Israeli economy. It's divided into 100 agoras or agorat (cents), and its currency code is "NIS", New Israeli Shekel.

You can easily convert your money to NIS at many exchange agencies and banks in Palestine, which are open from 8 A.M. to 3 P.M. ATM's are open 24 hours.

Here's a rough idea of the exchange rates: 3.5 to 4 NIS to the U.S. dollar, and 4 to the European Euro.

A different take: Thailand Currency Exchange from Payoneer

The Palestine Currency Board was established in 1927, pegging the Palestine pound to the British pound sterling, and all currency issue was backed by reserves held in London.

The board was responsible for managing the currency and contributing to the revenues of the Palestine government.

The initial currency issued by the board was (P£ 2.9 million, and it gradually increased to (P 60 million by May 1948.

The Palestine pound was no longer legal tender after the government of Palestine ceased operations in May 1948, and redemption centers were set up in Amman and London.

By mid-1952, most Palestine pounds had been redeemed, and the Palestine Currency Board was closed on June 11, 1952.

The board also played a role in Jordan's economy, as the Palestine pound continued to be legal tender in Jordan until September 1950 for notes and June 1951 for coins.

Explore further: Bhp Billiton Stock Symbol

Coins are made from a combination of metals, including copper, nickel, and zinc.

Some countries use coins made from precious metals like gold and silver.

The first coins were minted in ancient Lydia around 600 BC.

Coins have been used as a form of currency for thousands of years.

The United States uses coins made from a combination of metals, including copper, nickel, and zinc.

The largest coin ever minted was the Australian 1000 dollar gold coin, which weighed 1 kilogram.

Discover more: Sovereign Gold Bond

The Palestine pound was introduced in 1927 by the Palestine Currency Board, with notes issued in denominations of 500 mils, £P1, £P5, £P10, £P50, and £P100. These notes were printed with various security features, including watermarks and guilloches.

The £P100 note, equivalent to 40 months' wages of a skilled worker in Palestine, was particularly rare, with only 1,587 in circulation at the end of 1947. This scarcity was due to its high value, making it a sought-after note among collectors.

The Palestine pound was used in Palestine until the end of the British Mandate in 1948. After that, the Anglo-Palestine Bank issued new notes in the same denominations, but with different designs and security features.

Here's a list of the Palestine pound banknotes issued by the Palestine Currency Board:

The Anglo-Palestine Bank also issued notes in the same denominations, with different designs and security features.

Seigniorage is a term you might not be familiar with, but it's an important concept in the world of currency and money. It refers to the profit made by a government when it issues new currency.

The Palestine Currency Board, which operated from 1927 to 1952, contributed to the revenues of the Palestine government in almost every year of its operations. The board earned seigniorage on the currency issue, which was then shared with the Transjordan government.

In the case of the Palestine Currency Board, the seigniorage was distributed to Crown Agents to repay outstanding obligations and to the Hashemite Kingdom of Jordan when the government of Palestine ceased to exist. This shows how seigniorage can be a valuable source of revenue for governments.

The Palestinian government, however, didn't have to share its seigniorage with the Transjordan government, but it chose to do so as a gesture of goodwill. This highlights the flexibility that governments have in managing their currency and revenue streams.

See what others are reading: Deferred Revenue Waterfall