Gazans use tattered notes as cash crunch hits banks

"No society can operate without money, but that's the situation we are reaching in Gaza," said Gaza economist Omar Shaban.

Gaza vendor 88 248 (photo credit: )
Gaza vendor 88 248
(photo credit: )
The term "financial meltdown" is taking on a whole new meaning in the Gaza Strip: Under pressure by Israeli sanctions, local banks are literally running out of cash. Most banks have sharply curtailed withdrawals, the UN has stopped distributing cash handouts to Gaza's poorest and tempers are heating up as desperate people line up at local branches hoping to get a little money out of their frozen accounts. Economists and bank officials warn that tens of thousands of civil servants won't be able to cash their paychecks when they get their salaries next month. "No society can operate without money, but that's the situation we are reaching in Gaza," said Gaza economist Omar Shaban. The shekel is a widely used currency in the Gaza Strip, and the territory needs at least NIS 400 million, or about $100m., each month in new currency to replace aging notes and to pay salaries, economists say. The main source of currency is the Palestinian Authority government in the West Bank, which sends in currency shipments each month to pay its civil servants. The PA still claims authority over Hamas-controlled Gaza. Israel has not allowed cash shipments since October, part of a series of sanctions it has imposed on Hamas since the group seized power in June 2007. Israel tightened the blockade earlier this month in response to a wave of rocket attacks out of Gaza. But the cash shortage has little effect on Hamas, which funnels money into Gaza through smuggling tunnels from Egypt. It distributes cash to its own loyalists and the thousands of people it employs. It does not deal with the formal banking system. Shaban said the money shortage has worsened because residents tend to keep savings stashed at home, rather than in banks. Gaza businessmen pay in cash for goods imported from Israel, further bleeding money out. Gaza's tunnel smugglers, who bring in diesel and goods into Gaza from underground passageways linked to Egypt, also pay in shekels for purchases. Little money comes into the territory, meanwhile, because Israel has banned exports. Jihad al-Wazir, of the PA Monetary Authority in the West Bank, said his agency has asked Western officials to try to pressure Israel to allow the money in time to pay December salaries. Mideast envoy Tony Blair and the World Bank have also contacted Israel about the issue. The cash crunch is the latest shortage spreading through Gaza. Israeli defense officials said they had not ruled out further cash transfers, but said nothing could be delivered while fighting persists. Shlomo Dror, a Defense Ministry spokesman, questioned the seriousness of the shortage. "We are used to the Palestinians inventing things, and we are looking into their claim," he said. The crunch has made life a misery for some 40,000 of the territory's public servants, whose salaries are deposited into bank accounts by the PA government. Some residents head to the banks almost daily to withdraw their salaries in drips, keeping lines long and frustrations high. "I'm begging the bank to give me shekels, " said public servant Shawkat Othman. Othman stood in a crowded bank line for four hours this week, waiting to withdraw NIS 700 - some $175. Signs pasted inside banks tell customers they will not be allowed to withdraw more money. Chris Gunness, spokesman for the UN's Relief and Works Agency, said the agency has halted cash handouts to 98,000 of Gaza's poorest residents. Gunness said they could not obtain a daily sum of NIS 270,000 ($67,000) to make the distributions. ATMs throughout Gaza City still dispense US dollars. But most Gaza residents try to avoid withdrawing dollars, because money changers are expensive. Instead, Gazans deal in tattered, greasy shekel notes. Residents mostly use cash - few stores accept credit cards. "I've got only NIS 30,000 shekels [$7,500] left to exchange," said Abu Radwan, an informal money changer who stood outside a bank in downtown Gaza City. "I have a new rule - I only accept $200 at a time," he said. As the shekel supply dries up, Gazans will likely be forced to rely on dollars, Jordanian dinars, Egyptian pounds or even bartering. Ironically, instead of harming Hamas, the cash shortage seems to be hurting PA President Mahmoud Abbas West Bank government, which needs to pay salaries to shore up support for his rule. "The absence of shekels in Gaza is weakening one of the few tools left to [the Abbas government] that it could use to have influence in Gaza," said Shaban, the economist. "And that is salaries to thousands of public servants."