Finance Minister Bezalel Smotrich directed his office on Tuesday to cancel a critical policy for sustaining the Palestinian economy in retaliation for the decision by five Western countries to sanction him and fellow far-right minister Itamar Ben Gvir.

Smotrich’s office said in a statement that he had directed the Finance Ministry’s accountant-general, Yali Rotenberg, to waive the indemnity that Israeli banks have been given to correspond with Palestinian banks, “against the backdrop of the delegitimization campaign that the PA is leading against the State of Israel worldwide.”

Smotrich had earlier in the day reportedly pledged to collapse the PA in response to the sanctions, even though Ramallah was not known to have had any involvement in the joint decision by the UK, Canada, Australia, New Zealand and Norway.

The Palestinian economy relies heavily on the banks’ relationships with their Israeli counterparts to process transactions made in shekels, as the PA does not have its own currency. Some NIS 53 billion ($14 billion) were exchanged at Palestinian banks in 2023, according to official data.

The overwhelming majority of exchanges in the West Bank and Gaza are in shekels, Israel’s national currency, because the Palestinian Authority is prevented from having a central bank that would allow it to print its own currency.

The so-called corresponding banking agreement requires periodic extensions by Israel in order to remain in effect, and the Biden administration — along with the UK and other Western allies — exhausted significant efforts in urging Israel not to allow its expiration. It warned that failure to maintain the banking relations between Israel and the Palestinians would turn the West Bank into a “cash economy,” which would benefit terrorist organizations in the territory and make it harder for the already-weakened PA to fight such groups.

The Israeli security establishment also pushed back against the move, and Smotrich ultimately agreed to grant a one-year extension to the banking deal last November.

The sanctions announcement from the five countries made earlier Tuesday said that they would freeze assets and bar the entry of Smotrich and Ben Gvir for having “incited extremist violence” against Palestinians in the West Bank.

“Settler violence is incited by extremist rhetoric which calls for Palestinians to be driven from their homes, encourages violence and human rights abuses and fundamentally rejects the two-state solution,” read the statement from the five countries’ foreign ministries.

Over the past two years, Palestinian villages in the West Bank have been targeted in near-daily attacks by extremist Israeli settlers. The attacks go unpunished in the vast majority of cases.