Finance Minister Bezalel Smotrich was set to sign Thursday night, hours before the deal was set to expire, a one-month extension to an agreement allowing Israeli banks to correspond with Palestinian banks, an Israeli official told The Times of Israel.
The US and its Western allies have been pressing Israel to extend the corresponding banking deal by a year, fearing the collapse of the Palestinian economy in the West Bank.
Smotrich has long spoken in favor of collapsing the Palestinian Authority. The one-month extension allows the far-right minister to keep his options open depending on who wins the presidential election next week, the Israeli official said, confirming reporting by the Walla news site.
The decision also allows Israel to use a further extension of the banking agreement as leverage as the Biden administration weighs steps to advance Palestinian statehood during the lame-duck period, the official added.
Last week, US Treasury Secretary Janet Yellen and seven of her counterparts sent a letter to Prime Minister Benjamin Netanyahu expressing their alarm over the potential collapse of the Palestinian economy in the West Bank if Smotrich failed to renew the agreement.
“Actions taken by some members of your government to deny the West Bank access to financial resources endangers Israel’s security and threatens to further destabilize the entire region in an already perilous moment,” the Western treasury chiefs wrote in a letter obtained by the Axios news site.
The letter was addressed to Netanyahu, as Western countries have maintained a de facto boycott of Smotrich since he became finance minister in December 2022.
The US has considered sanctioning Smotrich over his policies, but has held off on the drastic step. US officials told The Times of Israel last month that the move would likely be reconsidered after the presidential election next month.
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.
US officials have warned that failure to maintain 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 West Bank economy has been in dire straits over the past year, as tens of thousands of Palestinian day laborers were denied entry into Israel during the war in Gaza, sparked when thousands of Hamas-led terrorists stormed southern Israel on October 7, 2023, killing some 1,200 people and taking 251 hostages.