This article is part of Realign for Palestine’s The Future of Money in Palestine series, which examines the monetary policy frameworks needed for Gaza’s reconstruction and seeks to provide a practical blueprint for establishing a financial system that Palestinians can trust.
The once-trusted Israeli shekel is no longer viewed as a politically viable or reliable currency for daily transactions in Palestinian markets. Reports from the field and discussions among policymakers and practitioners suggest that Palestinians are increasingly turning to the US dollar instead. Some are also moving into unregulated cryptocurrency markets, including exchanges that can facilitate illicit trading and benefit criminal and terrorist actors.
An unregulated financial market in the Gaza Strip or the West Bank would pose a serious security risk to actors across the region. Determining who shapes the monetary system—and which currencies and digital payment channels support recovery—has therefore become an immediate security priority as well as a financial and political one. The way money moves through Gaza could ultimately determine how effectively reconstruction funds reach households, businesses, and public institutions—and whether the recovery supports longer-term stability.
Research into currency options and the financial conditions in Gaza suggests that a regulated digital payment instrument could play a useful role in the near term. Given the extraordinary financial constraints facing Palestinians, a dollar-backed stablecoin could offer a more reliable payment mechanism during reconstruction—in Gaza and, potentially, the West Bank as well.
Such a stablecoin would require reliable financial and technological infrastructure, including secure payment channels, identity systems, and safeguards against illicit use. Its design would also carry important political and economic consequences, particularly for the post-reconstruction period. If properly regulated, it could provide a pragmatic bridge between the immediate need for reliable payments and the longer-term goal of greater Palestinian financial sovereignty.
Without intervention, the current Palestinian economy risks developing into two entirely separate circuits: a shekel-based trade circuit, mostly handling imports and exports with Israel and managing national accounts, and a dollar-based retail and internal reconstruction circuit. This fragmentation would deepen instability while giving private actors and Hamas more room to maneuver outside effective regulatory oversight. The choices made today will shape who controls these financial channels and whether they strengthen or undermine Palestinian financial autonomy in Gaza and the West Bank. The success of Gaza’s reconstruction will not hinge solely on how much money enters the strip, but on how that money gets there.
A stablecoin would not change the severe structural limitations on Palestinian monetary autonomy, especially the absence of a sovereign central bank with independent control over monetary policy. But it could provide a practical tool for addressing some of the immediate challenges facing the Palestinian financial system. Its value should therefore be measured not by whether it offers a perfect solution, but by whether it can help create the conditions for greater financial autonomy over time.
Dollarization is already underway
Financial data and conditions on the ground suggest that dollarization is already taking hold in Gaza. Aid entering the strip is overwhelmingly denominated in US dollars, and 42 percent of Palestinian bank deposits are already held in dollars. At the same time, financial and correspondent banking relationships between Israeli and Palestinian banks are under greater strain than at any point since cooperation began after the 1994 Paris Protocol.
The constraints facing the Palestinian financial system have accelerated this shift. The debate over whether Palestinians “should adopt the dollar” therefore risks missing the more immediate question: how should the ongoing process of dollarization be managed? Israeli decisions to withhold funds from the Palestinian Authority (PA), the accumulation of excess shekels in Palestinian bank vaults, and the growing risks surrounding correspondent banking are all pushing the financial system in this direction.
In late 2025, the surplus shekels in Palestinian banks stood at approximately $4 billion, and the Bank of Israel restricts their conversion into interest-bearing assets. Meanwhile, the PA has not received clearance revenues since February 2025, and approximately $4.4 billion remains frozen, according to the Palestinian finance minister.
International organizations are already sending dollars directly to Gaza, while payment service providers and exchanges facilitate dollar-denominated transactions. These channels have long supported a parallel dollar economy. As access to shekels becomes more difficult and liquidity constraints persist, the use of dollars—and, in some cases, cryptocurrencies such as Bitcoin—is likely to grow.
This creates a rare opportunity to shape an emerging financial system before it becomes entrenched. Digital currency use and wallet adoption are already widespread, and the Palestine Monetary Authority (PMA) recognizes the US dollar as legal tender. A regulated, dollar-backed digital currency could build on financial practices that already exist rather than attempting to introduce an entirely new monetary system.
From the US perspective, the GENIUS Act provides a regulatory framework for dollar-backed stablecoins and establishes a reciprocity mechanism through which qualifying non-US issuers can operate under it. Humanitarian pilots have also increasingly relied on dollar-denominated stablecoins. Mercy Corps Ventures, a US-based organization, used USDC as the base rail in its Afghanistan and Haiti pilots. Similarly, a cash assistance program in Ukraine, established by the Office of the UN High Commissioner for Refugees (UNHCR) and run with the Stellar Development Foundation, also disbursed funds in USDC. Taken together, these examples suggest that a dollar-backed stablecoin for Gaza would build on an emerging dollar-based digital payment infrastructure rather than create an entirely new model.
The choice is not whether dollarization will happen, but whether it will happen in a regulated and transparent way. International partners should help shape the emerging system from the outset, with clear governance, strong compliance controls, and safeguards against illicit finance. A dollar-backed stablecoin could provide one such channel—particularly if it is designed around the needs of reconstruction and the longer-term goal of Palestinian financial autonomy.
What is a stablecoin?
A private stablecoin is a digital token whose value is pegged to a stable asset, in this case, the US dollar. Unlike regular cryptocurrencies such as Bitcoin, whose value fluctuates sharply, a stablecoin maintains a fixed value because it is backed by reserves of real assets: cash, bank deposits, or short-term government securities.
In the context of Gaza, a stablecoin would provide Gazans with direct access to dollars without dependence on informal intermediaries who charge up to 40 percent in fees and the ability to save, pay, and access credit in a more liquid economy. It is important to emphasize that the model relevant to Gaza must be backed by real reserves at a one-to-one ratio, rather than an algorithmic mechanism that attempts to regulate supply and demand to maintain the peg—both because of the liquidity risks and because of the lessons from TerraUSD, which collapsed catastrophically in 2022 and wiped out billions of dollars without recourse for holders.
For international donors, the technology has the potential to replace the long chain of intermediary accounts and untraceable cash with a single direct transfer, making it possible to see where every dollar ends up. For security bodies, it enables real-time monitoring, algorithms for detecting suspicious transactions, and wallet freezing—tools that make it substantially harder to route funds to Hamas and its affiliates. The system can also protect the privacy of citizens’ transactions from the general public while allowing authorized institutions to access the information needed for oversight and compliance.
A stablecoin mechanism could offer a unified, governed, and accessible currency that further integrates Palestinians into broader international markets.
Why design matters in stablecoin architectures
The infrastructure for developing a stablecoin is not one-size-fits-all, and the decisions made in designing its architecture directly affect the coin’s reliability, trust, and effectiveness. Governance, ownership, monitoring, privacy, and digital infrastructure all need to be considered as part of a coherent system. There are decentralized and centralized ledgers, as well as permissioned and permissionless structures. A Gaza stablecoin would also need to balance anti-money-laundering and counter-terrorist-financing (AML/CTF) compliance with the protection of privacy and sensitive personal data. These choices matter not only for how the system operates, but also for its adoption.
A major political challenge to any digital solution is that many Gazans—and Hamas in particular—have perceived and presented digital compliance systems as an attempt at external Western takeover. Any “know your customer” (KYC) mechanism, transaction monitoring, or wallet freezing can be perceived as a surveillance tool. Moreover, informal money changers and hawala-style networks have a direct financial interest in blocking any system built to displace them.
Addressing this challenge requires embedding the system inside platforms Gazans already trust rather than introducing it as a foreign-branded rollout, including working through existing payment service providers such as iBuraq and NeoCash. The messengers matter as much as the message: local business associations and community leaders are far better positioned to explain the system than international officials. On the compliance side, the system should commit to transparent, public reporting on reserve holdings and audit results to increase trust. A plain-language explanation of what compliance authorities can and cannot see on the ledger would also be necessary.
To understand how these considerations shape a stablecoin model for Gaza, the following sections examine the available design options and their implications for how the system would operate, how it would be governed, and how it would function within the broader financial system.
Who issues the stablecoin—and who holds the dollars?
The correspondent banking relationships between Israeli and Palestinian banks are at their worst point since the 1994 Paris Protocol, and international banks are already reluctant to process routine PA transactions. These conditions make it unlikely that a foreign bank, fintech, or private stablecoin issuer would assume responsibility for holding Gaza-specific dollar reserves without significant guarantees or incentives. Sanctions exposure, AML liability, and reputational risk would all weigh against taking on such a role.
The good news is that stablecoin pilots in the aid sector have already tested two models for solving the custody and settlement problem. In Afghanistan, Mercy Corps Ventures partnered with the local fintech HesabPay and the Community Driven Development Organization (CDDO) to establish a local custodial structure. Donor USDC entered CDDO’s digital wallet, and HesabPay issued an afghani-denominated digital token held in its custodial wallet system and backed one-to-one. This locally anchored model places custody with a domestic financial institution operating in partnership with an international NGO.
In Ukraine, UNHCR took a different approach: it partnered with the Stellar Development Foundation, a US-based nonprofit, for technical and settlement services, and used MoneyGram, a global remittance company, as the off-ramp that absorbed and converted USDC at scale. Instead of requiring a single local custodian, this model relies on an international settlement network that is better suited to high transaction volumes.
These examples point to two potential models for Gaza: a locally rooted fintech custodian operating in partnership with an international NGO, or a settlement network with sufficient scale to handle currency conversion without relying on a single local institution. Given Gaza’s reconstruction needs, the most plausible path is likely a hybrid model: an international settlement partner with existing scale, paired with a domestic custodial layer modeled on the Afghanistan approach for the retail leg.
Implications in ledger design
A stablecoin requires a ledger to record transactions, but that ledger can be designed in different ways. One option is distributed ledger technology (DLT), in which multiple participants maintain and validate the same record of transactions rather than relying on a single central authority. Blockchain is one example of a DLT architecture. Transactions can be validated through different consensus mechanisms. For example, proof of work allows participants to validate transactions by solving mathematical puzzles, while proof of stake selects validators based on the value of assets they have committed to the network. Regardless of the consensus mechanism, DLT provides a shared record of transactions, high levels of transparency, and strong resistance to tampering and corruption.
In the context of Gaza’s reconstruction, a distributed ledger could improve coordination among donors, banks, payment service providers, and regulators by ensuring that all participants work from the same transaction record. Rather than repeatedly reconciling separate databases, authorized parties can rely on a common ledger that updates in real time. No single player controls the data, allowing both bottom-up verification by Gazans receiving transfers and top-down verification by international parties participating in the reconstruction process.
Such a system would also be relatively resilient to cyberattacks because there is no single point of failure. A central drawback, however, is that payments are generally immutable. And if problematic transactions are identified only after they have been completed, complex regulatory mechanisms are required to reverse them and return the funds to the sender.
If a stablecoin is built on DLT, clear rules would be needed to establish who is permitted to open a digital wallet and hold the stablecoin, who is permitted to approve transactions, and who has viewing permissions only. Furthermore, careful consideration should be given to the different options for reversals based on the transaction framework. By its very design, blockchain directly conflicts with the principle of reversal. Such challenges are likely best resolved at the protocol level—for example, through an escrow agent that separates “sending” from “final settlement.” In any such model, it would be critical to define in advance the reversal window—how long after sending a reversal can be contested. It would also be necessary to define the approval process for the escrow to release the transfer.
In a permissioned distributed ledger, by contrast, only verified entities such as banks, NGOs, and infrastructure providers can be nodes in the network. Anyone wishing to join must undergo a full KYC review and periodic audits. This model enables compliance oversight and can support adherence to applicable financial, AML, and cross-border payment requirements, while constraining militias’ ability to exploit anonymity to divert funds. Its principal trade-off is institutional rather than technical: a capable governance and enforcement mechanism must be established to manage and control network permissions.
The key questions that must be addressed include:
- Who manages the permissions list?
- What criteria determine when an entity should be removed from the network?
- How does infrastructure operated by multiple entities—including international actors—transition back to Palestinian control and management as recovery progresses?
Governance and compliance with international regulatory standards
It is important to learn from the failures of previous blockchain-based platforms: TradeLens, Contour, we.trade, and Marco Polo all shut down between 2022 and 2023. These platforms did not fail because of the underlying technology, but because of flawed business models that did not allow for easy and rapid scaling, as well as consortium governance structures that struggled when banks were simultaneously partners and competitors. The lesson is that the Gaza platform must not be built on a group of entities with competing interests. A single neutral issuer and a clear governance framework may ultimately be more effective than a system involving multiple parties and DLT options, providing something closer to a new version of a central bank for the people.
Beyond these foundational questions of organizational management, the platform would also need to comply with a range of regulatory standards in the United States, Europe, and the international financial system. Each has developed its own compliance criteria and expectations for fintechs such as stablecoins. Three frameworks are particularly important in this context: the US GENIUS Act, the EU’s Markets in Crypto-Assets (MiCA) regulation, and Financial Action Task Force (FATF) rules.
The GENIUS Act requires that stablecoins issued under its framework be dollar-backed and therefore subject to US law. Key requirements of the act include one-to-one backing with dollar-denominated assets, such as short-term Treasuries and cash, redemption within one business day, public monthly reporting, and full AML and Bank Secrecy Act compliance.
Significant regulatory work is required to bridge Palestinian needs and the GENIUS Act framework—particularly regarding who qualifies as an “issuer” and which jurisdiction governs the stablecoin. The legislative text includes a reciprocity mechanism, meaning that countries with equivalent compliance frameworks may be able to qualify for access to the US market. This could be relevant if the issuing authority or stablecoin operation is based outside the United States.
The stablecoin would similarly need to meet the requirements of the MiCA regulation and address the requirements identified by several European governments and institutions considering funding the reconstruction of Gaza. These include an e-money token license, backing with liquid assets, and full redemption at any time. MiCA also empowers the European Banking Authority to restrict the use of non-European stablecoins if transaction volume exceeds a defined threshold.
Additionally, under FATF rules, transfers above $1,000 in the United States must include identifying information for both parties. Virtual asset service providers—entities that handle crypto transactions—must share this information with one another. On a permissioned platform, such requirements can be enforced. On a permissionless platform, however, enforcement is almost impossible. The so-called travel rule, which requires that basic information about the sender and beneficiary accompany transfers, offers a strong argument for permissioned architecture. Yet implementation of the rule remains inconsistent across countries, with many jurisdictions still not enforcing it effectively.
Digital identity and privacy
Today every bank and authority conducts a KYC process. This unnecessary duplication leads to high costs without necessarily reducing security gaps. Large US banks spend up to $500 million per year on KYC compliance. Nevertheless, new technological solutions can help improve efficiency while reducing the compliance burden that Gaza’s financial infrastructure is expected to face, including through a shared KYC utility.
Under a shared KYC approach, a customer undergoes full identity verification only once, at their holding financial institution. The verification result is stored on the ledger as a proof of validation, allowing every authorized entity in the network to verify the customer’s identity without repeating the process. The costs of KYC can be shared among all participating institutions through smart contracts. However, important governance questions remain. Who qualifies as an authorized institution? What level of verification is required? And how are status changes handled—for example, if a wallet is later designated as blocked by a security authority? The EU’s General Data Protection Regulation and other regulatory frameworks also require the protection of participants’ personal information. In practice, this means that the public should not be able to identify the person behind a digital wallet or view their transaction history. At the same time, AML/CTF compliance requires regulated entities to share certain data with one another.
One technological solution is zero-knowledge proofs (ZKPs). A ZKP allows one party to prove that a statement is true—such as that a customer has passed AML checks—without revealing the customer’s underlying personal information. The technology enables entities to verify specific facts without disclosing a user’s full identity. For example, a participant could confirm that a wallet is not on a sanctions or blocked list without revealing who owns it. This makes ZKPs particularly valuable for compliance protocols that require cross-border verification while protecting individual privacy. In the Gaza context, they could also help address political concerns about surveillance by limiting the personal information visible to other participants, while still allowing compliance authorities to access identities when legally required.
Monitoring, suspicious wallets, and freezing
One of the built-in advantages of DLT is its capacity for continuous monitoring. Automated flagging mechanisms can be embedded directly into the system. These technologies already exist in the private market and use AI-driven analytics, classification, and predictive models to identify suspicious transactions in real time. The system could be configured to detect predefined risk indicators, such as transaction splitting, the use of blocked wallets, funds flows inconsistent with the intended purpose of aid, circular transactions in which money returns to the same wallet, or wallets receiving unusually large transfers relative to their profile.
Blockchain analytics tools combined with machine learning models can perform real-time risk scoring for every transaction. Private-sector providers such as Chainalysis, TRM Labs, and Elliptic already deploy these capabilities at scale, using address clustering to link multiple wallets to a single entity, neural networks to detect anomalous transaction patterns, and boosting models to identify structuring and layering in real time.
At the same time, governance over wallet freezing is just as important as the monitoring technology itself. The circumstances under which wallets can be frozen must be clearly defined, transparent, and understandable to the public. Moreover, safeguards are needed to ensure that freezing powers cannot be exercised arbitrarily or coercively.
Major stablecoins such as USDC and USDT already include mechanisms that allow specific wallet addresses to be frozen at the request of authorized authorities. In Gaza, wallets automatically flagged by the system could be temporarily frozen pending human review. The compliance bodies authorized to freeze wallets, and the circumstances under which they may do so, must be defined in a way that protects security without disrupting the routine functioning of the Gazan economy. Who approves transactions, who monitors activity, and who has the authority to freeze wallets are therefore central governance questions. The framework proposed below illustrates one possible model for Gaza that combines four layers, though the precise allocation of responsibility will depend on decisions about the issuing authority and the broader transitional governance arrangements.
- An international governance body that is responsible for defining criteria for white- and blacklists. This body is authorized to view transactions, approve transaction reversals, freeze high-priority wallets, and oversee a dispute-resolution mechanism.
- A technical compliance authority that operates AML/CTF controls, investigates automatically flagged transactions, and makes day-to-day freezing decisions.
- Payment service providers such as iBuraq and NeoCash, as well as funding institutions, must be approved by the compliance authority to participate in the stablecoin network. They undergo quarterly audits. Payment service providers are responsible for approving new digital wallets and conducting KYC during onboarding. Funding institutions manage payment accounts for Gazans outside the stablecoin system. Their participation is to ensure the convertibility between the stablecoin and other forms of money, including fiat currency and cash, for Gazans.
- End users—in this case Gazan citizens—can open a digital wallet through an authorized platform by transferring funds from a bank account to the platform, where they are converted into stablecoins backed by US dollar reserves. Users are entitled to maximum privacy with minimal compliance requirements through ZKPs and can appeal to the relevant authorities if their wallet is frozen.
The role of payment mechanisms in a stablecoin’s design
Payment for performance is a mechanism in which funds are released from a third party—an escrow agent—only after the service provider or contractor meets a predefined target—for example, completing and inspecting one hundred housing units. The smart contract holds the money in escrow and releases it only after the agreed milestone has been verified.
Similarly, in payment for delivery, funds are transferred only after a good or service has physically reached the recipient. This approach would be particularly relevant during the early phases of Gaza’s reconstruction, when aid is directed toward essential goods such as food or medicine.
These payment mechanisms also raise important compliance challenges. A smart contract cannot independently verify events in the real world. Instead, it relies on an “oracle”—an external data source or sensor that confirms whether the agreed condition has been met. However, oracles can themselves be manipulated: confirmations may be falsified, and communications infrastructure in Gaza may be unreliable or unavailable. If an oracle provides incorrect information, it is also unclear who bears legal responsibility. To date, no jurisdiction has established a comprehensive legal framework for addressing this question.
One possible solution is a multi-oracle architecture, which cross-checks confirmations from multiple independent sources—including both automated sensors and human verification—for transfers above a defined threshold. However, policymakers would still need to determine how to conduct these verification processes without creating excessive costs or administrative burdens. At the same time, the system must remain simple enough to support routine, low-value transactions between individuals without unnecessary delays or compliance requirements.
What a payment transaction flow could look like
The use of a stablecoin to distribute humanitarian aid could provide a fast, cost-effective, and secure payment mechanism. In a multi-oracle model, a humanitarian organization could deliver a food shipment to a refugee camp in Rafah in exchange for verified confirmation of delivery:
- The organization receives Gaza stablecoins (GZUSD) from the official issuer, backed one-to-one by US dollars held in trust.
- A smart contract is created, for instance: “Release 500 GZUSD to wallet X once an oracle confirms delivery of a food package.”
- The funds enter escrow on-chain. The organization cannot access the funds, while the recipient has not yet received them.
- An NGO team on the ground scans the food package’s barcode and records a biometric signature (oracle one).
- A supervisor from the transnational authority provides digital verification (oracle two).
- The smart contract releases the funds, transferring 500 GZUSD to the recipient’s wallet.
- The recipient can hold GZUSD, convert it to cash through an authorized agent, or use it to pay a local business that accepts GZUSD.
Every transaction in this system would be logged on the blockchain, creating an immutable and transparent record visible to the compliance authority. All actions would be performed under a verified KYC framework. Privacy vis-à-vis the public would be maintained, while authorized regulators could access wallet-holder identities through legally established procedures.
A stablecoin architecture for Gaza
Based on the analysis above, our recommended model for Gaza is a reserve-backed, permissioned DLT-based stablecoin, integrated into the existing financial ecosystem. Under this model, the PMA would serve as the technical compliance authority responsible for running AML/CTF mechanisms, and the Board of Peace would function as the international governance body.
Existing payment service providers and financial institutions operating in Gaza should be provided with clear technical standards and regulatory requirements for integrating the stablecoin into their existing platforms. The ledger should embed compliance mechanisms, including ZKPs, enabling payment service providers to coordinate on transaction flagging and compliance without exposing consumers’ full personal data.
As a first step, a proof-of-concept trial integrating existing technologies into this framework and seeking recognition under the GENIUS Act’s reciprocity mechanism would provide a meaningful way to test the model before full deployment.
In summary, a Palestinian-led and developed stablecoin could be a fundamentally positive next step for the future of the Gaza Strip. Meaningfully integrated into existing financial infrastructure, it could elevate the Palestinian economy to a new space where compliance and privacy are synchronized, while intentional design decisions create conditions conducive to a future autonomous economy. Its use of the US dollar would also connect the Palestinian economy more closely to the international financial system.
The success of a stablecoin or any other project will depend on a host of regulatory and policy improvements for which the PMA and other institutions will be responsible. A functional and sustainable Palestinian economy requires a functional payments system, which will benefit the wider region.
Many questions remain about the design of a stablecoin for Gaza, and establishing a clear set of design principles will be critical to its adoption. These include what identification and KYC standards should apply, who should issue the coin, how to ensure that reserves remain backed one-to-one and that the same dollar reserve is not reused to back multiple obligations, who should audit the reserves, and what happens in the event of insolvency. Other questions concern what protection mechanisms should be in place, how offboarding should be managed, what role the banking sector should play in the transition, and how critical financial infrastructure can be maintained and supported.
Avia Liberman is an economic analyst and a junior fellow at Realign for Palestine, a project of the Atlantic Council’s Rafik Hariri Center and Middle East programs.
Melanie Robbins is the deputy director of Realign for Palestine.
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Image: A worker displays US dollar notes after receiving her salary in the southern Gaza Strip. Source: REUTERS/Ibraheem Abu Mustafa.
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