Central bank digital currencies (CBDCs) utilize technologies to digitize a country’s official currency. Governments are increasingly examining CBDCs with the goal of having them play an integral part of their economies due to their many potential benefits despite a myriad of detracting factors. While there is significant debate over how CBDCs should be implemented, the fact remains that they represent the best chance for governments to remain involved within the ever-changing financial technology (fintech) sector. With its many effects, one specific use-case that CBDCs may be able to help most with is to bring stability to the Israeli-Palestinian conflict. The war-ridden Israeli and Palestinian populations have been engaged in significant turmoil for decades, and this paper recognizes that CBDCs alone cannot bring such a conflict to an end. However, they represent a potential solution to help both sides regain trust in one another, with CBDCs acting as a mutually trusted system for all groups to transact and interact with the goal of bringing economic prosperity to all. Current explorations into regional CBDCs Both Israel and Palestinian authorities have recognized the benefits of a CBDC and are working quickly to examine implementation for their respective populations. In , the Bank of Israel announced trial tests of the digital shekel based on Ethereum technology. This statement followed a report in that reflected favorably on such digital payment systems, with this report highlighting how cryptocurrencies could help simplify the payments process while providing security to transaction participants. June 2021 May Additionally, also saw the announcement of potential CBDC proposals by the Palestinian Monetary Authority (PMA). The use of a Palestinian-controlled CBDC would have significant implications for Palestine and its neighbors, with this move truly validating the PMA as a governing body for monetary issues in the region. June 2021 With these mutual visions of CBDC development, both the Israeli and Palestinian governments are taking their first steps towards ensuring better financial inclusion, equity, and economic growth for all. CBDCs helping to set the stage for mutual Israeli and Palestinian economic growth The utilization of CBDCs would help unbanked individuals receive access to traditional credit, savings sources, and financial investment vehicles, among many others. The fact is that Israel’s poor, of its population is a traditionally unbanked and underbanked community. 20.9% Palestinians suffer from even higher rates of bank inaccessibility, with one study showing that more than of adults in the Palestinian Territories not using banking institutions at all. Giving these people access to better financial resources would help propel them to new heights in terms of economic prosperity. 50% It is also worth noting that Palestinians currently do not have their own currency, with Palestinians relying on the shekel for daily use. Other popular stores of value currently include the Jordanian dinar, euro, and American dollar. This overreliance on other countries’ currencies does little to inspire confidence for regional economic growth, with rules such as strict Israeli anti-money laundering laws cross-border transactions bringing significant financial worries to those in the region. limiting CBDCs could help resolve these types of issues, with governments being able to encourage secure cross-border transactions to promote economic growth. Additionally, CBDCs could be used to tackle traditional challenges to emerging governments, including corruption, graft, and money laundering, which would be made significantly more difficult considering the implementation of a CBDC. This would help reduce scenarios ranging from extreme inflation to outright theft, ensuring economic stability and protection from corrupt actors. Such a CBDC could help further legitimize the PMA and the Palestinian government, with a Palestinian-run CBDC surely acting as a point of nationalistic pride for the Palestinian population. Why not cryptocurrency? It can be argued that cryptocurrencies could also perform a similar service for the Israeli and Palestinian communities. The use of blockchain, distributed ledger technologies, and cryptocurrencies could also act as a store of value for individuals much in a way that El Salvador legally recognized Bitcoin as legal tender in . June 2021 However, current power dynamics between Israeli and Palestinian authorities would make the use of cryptocurrencies as legal tender a temporary solution to the problem of regional stability. The development and implementation of a CBDC, particularly if established jointly or via partnership, would act as a signaling factor to the outside world that both Israel and Palestine are ready for future growth and peace. Simply put, the centrally controlled nature of CBDCs would act as a positive point to ensuring cross-border cooperation, ensuring stability, honesty, and transparency in all transactions through government support and enforcement. Therefore, CBDCs could act as a flexible platform for issuing digital money to all, with CBDCs being a positive force for change in a region so often in crisis. Conclusion In conclusion, the exploration of CBDCs by both Israel and Palestinian authorities is one that must be viewed with positivity. While both groups have been at conflict for so long, CBDCs represent a stabilizing factor that can bridge the divide between the Israeli and Palestinian governments, enabling both groups to highlight their readiness for peace and for future economic growth.

CBDCs Could Bring Economic Growth to Israel and Palestine

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