Can Bitcoin save Gaza’s economy?

As Israel’s economic blockade of the Gaza Strip continues, with no end in sight, digital currencies such as Bitcoin have seen a surge in use. 

Israel’s 12-year blockade has locked millions of people inside the territory and heavily restricted the movement of goods and people. 

More than half of the households in the Gaza Strip have faced food insecurity and the public health care system has run out of life-saving equipment and medicines.

According to World Bank’s 2018 report, the Gaza economy is in “free fall” as the unemployment reaches 54 percent. 

In the absence of a Palestinian national currency, most of the businesses depend on the Israeli shekel along with US dollars and Jordanian dinars. However, banks around the world refuse to deal with Hamas, which is designated a terrorist organisation by Israel, the US and the EU.  

A power struggle between the Hamas movement which controls Gaza and the Fatah movement which runs the government - the Palestinian National Authority- in the West Bank is adding to Gaza’s already overstretched economy.

When Hamas pushed out its rival faction Fatah from Gaza in 2007, it hired additional staff and refused to work with Fatah’s civil servants. 

Today, Hamas is not able to pay the salaries of the nearly 40,000 civil servants and the Palestinian National Authority refuses to help Gaza in a power game which seeks to put pressure on the group to negotiate. 

As a liquidity crisis looms in the territory and with 80 percent of the population dependent on humanitarian assistance, the United States Agency for International Development announced on Friday that it had ceased all assistance to Palestinians in the occupied West Bank and Gaza. 

The combination of the conflict, blockade and the Hamas-Fatah dispute has pushed people and businesses in Gaza to adopt different coping mechanisms, such as cryptocurrencies.  

Ahmed Ismail, a Gaza-based financial analyst, told coindesk.com that there are at least 20 unofficial cryptocurrency exchange offices across the Gaza Strip.

“Bitcoin, in their opinion, is cheaper, safer, and quicker,” a Gaza currency dealer says, adding that “nothing works with Palestinian banks. Bitcoin wallets are alternative banks”.

On Tuesday, a spokesman for the armed wing of Hamas called on supporters to donate in Bitcoin to deal with its financial isolation. 

But can all of these attempts help Hamas bypass the blockade and offer a long-term solution to the Gaza’s financial crisis? 

“It is possible for them [Hamas] to use Bitcoin to bypass the Israelis' blockade on physical space and conventional financial markets, but most services and salaries in the Gaza Strip are paid for in US dollars, Israeli shekels, or Jordanian dinars,” Tallha Abdulrazaq, a researcher at the University of Exeter's Strategy and Security Institute, told TRT World. 

“In other words, for Bitcoin to have a tangible effect, Hamas would have to sell their Bitcoin for dollars and then somehow bring those dollars into the territory, which usually relies on smuggling cash from neighbouring Egypt.”

Last year, the head of the Palestine Monetary Authority [PMA] Azzam Shawwa told Reuters that the Palestinian government planned to launch its digital-only currency within five years to protect the economy against Israeli interference. 

Another reason behind the decision is that the PMA faces practical challenges in delivering hard currency to the country as it does not have money-printing facilities. 

However, this attempt causes some concern. According to the 1994 Paris Protocol agreement, the Palestine Monetary Authority does not have the right to issue currency. 

At the same time, it could create a lot of problems between Palestine and the rest of the world.

“I really doubt a homegrown Palestinian digital currency would be successful as the global markets are dominated by conventional fiat currencies,” Abdulrazaq said. 

“One would have to sell it for fiat to turn any kind of cryptocurrency into a tangible asset and to apply the conventional institutions and transactions which were set up a very long time ago,” he added.