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Al-Ahram Weekly 25 Nov. - 1 Dec. 1999 Issue No. 457 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 25 Nov. - 1 Dec. 1999 Issue No. 457
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Features Profile Travel Living Sports People Time Out Chronicles Cartoons Letters No small change...
By Sherine BahaaPalestinians have long used a mixture of Israeli Shekels, Jordanian Dinars and US Dollars for economic transactions, given the lack of an alternative since Israel occupied the West Bank and Gaza Strip in 1967. However they now consider a national currency to be a symbol of sovereignty vital to the creation of a future, independent state, and plans are being made to introduce one within the next two years.
"This is an element of the basic infrastructure needed for an independent Palestinian state," said Fouad Hamdi Bessissou, head of the Palestinian Authority's (PA) Monetary Authority.
However, in addition to political will, an independent currency requires complex monetary and fiscal policies, not to mention a national budget and a central bank with sufficient reserves. And, according to Bessissou, for these reasons, the new currency's introduction will depend on the development of the Palestinian economy and on the peace process itself.
In a possible boost to the plans, the Israeli government said this week that it did not object to a Palestinian currency, Israeli Prime Minister Ehud Barak saying that the Palestinians could set up their own economy, independent from Israel's, as part of any final peace settlement.
"The Palestinians will not want to be fully integrated into our economy, use our currency, or accept limitations on access to world markets," he told the US-based Israeli Policy Forum.
However, an independent Palestinian currency may face political obstacles as well as difficulties competing in the global market. A meeting of the Arab League in Cairo earlier this month, attended by representatives from the Arab Monetary Fund, the World Bank, the Arab Bank Union and various Palestinian economists, focused on the problems and the advantages that an independent currency may encounter.
Bessissou adopted an upbeat tone at the meeting, saying that a national Palestinian currency would help the PA's Monetary Authority combat inflation, reduce the rate of unemployment and encourage investment in the Territories. Other participants suggested that the currency be linked to a currency basket that included the currencies of the PA's main trading partners -- the European Union, Israel and Jordan.
The PA has also asked the World Bank and the International Monetary Fund to help make the new currency the backbone of an independent monetary system.
However, Salah Abdel-Shafi, a Palestinian development economist, said that the proposed currency would inevitably be weighted down by political, as well as economic, considerations.
"It is important to start preparing [politically and economically] before issuing this currency," he said, adding that a Palestinian currency is only one element in the declaration of a state, which is the goal of the final-status talks.
For his part, Barak, though supporting the idea of a separate Palestinian economy, has emphasized the need for "separation but not detachment" between Israel and an independent Palestinian state. He said that in the future the two economies should cooperate, establish bilateral trade agreements and share know-how and raw materials, with a number of Palestinians continuing to work in Israel.
However, Palestinian Minister of International Cooperation and Planning Nabil Shaath said that he did not see "any link" between the declaration of a state and the issuing of a currency.
"The declaration of a Palestinian state has been totally disconnected from permanent status negotiations. [We must] plan for this state in a variety of ways -- such as writing the constitution and issuing our new currency. We have even started establishing new state institutions," he said.
Discussions concerning a proposed Palestinian currency actually started a year ago, according to Shaath. "Hong Kong had its currency while it was a colony, and the Gulf States issued their currency before they gained their independence," he said, adding that the currency would be bolstered by the PA's $2.7 billion deposits in its banking system, which represents almost 55 per cent of Gross National Product (GNP).
Nevertheless, Abdel-Shafi was less optimistic, saying that "to have our own currency we should have full control of Palestinian potentialities. We should have our land, natural resources, external trade, and the movement of our goods through corridors. [But] all these aspects are still controlled by Israel."
Under the existing interim peace arrangements, Israel and the PA have signed a customs union intended to guarantee the free flow of goods between them. However, recent studies have shown that economic conditions within the territories have deteriorated, and that the continuing Israeli occupation has meant restrictions on the free flow of labour and goods, as well as frequent border closures.
Economic analysts believe that trade between Gaza and the West Bank has also been obstructed by the presence of Israeli forces in the area. And, according to Abdel-Shafi, economic conditions there have worsened since the beginning of the peace process five years ago, both in terms of a decrease in the number of Palestinian labourers inside Israel, and in the resulting reduction in per capita income and standards of living.
