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While the United States has established a “Board of Peace” to oversee Gaza’s reconstruction, global headlines are almost entirely focused on the enormous sums expected to flow into Gaza from Western countries. Very little attention is paid to whether these funds will reach their intended destinations.
One critical layer is largely absent from the public debate: the financial architecture through which international reconstruction funds will enter Gaza. Previous development efforts in Gaza following earlier wars did not fail due to a lack of funding or technical expertise, but because money flowed through opaque channels that allowed funds to reach Hamas before civilians.
Gaza deserves a modern payments system that allows funds to reach their intended recipients in a transparent and auditable manner. Today, Gaza’s strangled economy relies almost entirely on cash and unregulated intermediaries. Only around a third of Palestinian adults hold a bank account, and credit cards are held by just 3.6 percent of adults. This makes it difficult for donors to ensure funds reach civilians, for Gazan businesses and households to access credit, and for security authorities to monitor illicit financial activity. The aspiration to reconstruct Gaza at scale by injecting cash into the existing system is naive.
Destroyed banks and damaged bills
During the war, Israeli restrictions on the inflow of new banknotes led to severe cash shortages. Over 90% of bank branches and 88% of micro finance institutions in Gaza were destroyed. Worn or damaged bills lost value, while residents were forced to rely on informal brokers charging commissions of 30-40% simply to withdraw their own funds. These distortions disrupted basic commerce and highlighted a deeper issue: Gaza does not have the monetary infrastructure required to absorb large and sustained inflows of aid.
The Board of Peace should adopt modern technologies that benefit both Gazan civilians and regional security. An alternative can be created through the establishment of a digital payments system designed explicitly to support financial demilitarization. The idea is to move international aid away from cash into a system where transactions are traceable and enforceable. Electronic money is a tool for ensuring that financial flows serve civilian purposes rather than militant ones.
At this point, there are two financial instruments whose integration can be considered: private stablecoins and central bank digital currencies (CBDCs). A private stablecoin is a digital token based on a distributed ledger that maintains a stable value, hence its name. Stablecoins can, for example, peg themselves to the value of the US dollar through guaranteed backing by cash reserves or liquid assets. A CBDC, by contrast, is public digital money issued by a central bank, such as the digital shekel. The currency represents a liability of the state to its holder, just like physical cash, but settles electronically on a centralized ledger.
Some may worry whether Gazans would be able to open and access a digital payment system. However, data shows that for Palestinian, especially Gazans, digital wallets are much more approachable than their local bank, with estimated 80% with access to cellular reception and smartphones, and 86% with devices that connect to the internet.
Accessible, transparent payments
From a security perspective, this technology enables real-time monitoring of transfers, the design of algorithms that flag suspicious transactions instantly, and even the freezing of suspicious transfers. The mechanism embedded in these digital currencies can ensure conditional transfers between wallets only after a service or good has been delivered to Gazans on the ground, known as Payment for Delivery (PvD). For international donors, this enables control and transparency regarding how their funds are ultimately used. Most importantly, for Gazans, it enables access to payments, savings, and microcredit without reliance on informal intermediaries.
Of the two possible digital payment system, one is an internationally governed stablecoin, potentially supervised by the Board of Peace or another multilateral reconstruction authority. Under this scenario, dollar-denominated aid could flow directly into Gazans’ digital wallets without requiring conversion into shekels, which is expected to reduce costs and frictions while lowering exchange-rate risk. This approach would also preserve a degree of monetary separation from the Israeli shekel, one can argue could be important because it may enable future economic and political separation between the states.
However, this model has two major drawbacks. The strongest and most widely used stablecoins today are privately issued, and international regulatory infrastructure still lacks the enforcement capacity needed when rapid action is required to prevent Hamas’s rearmament. Under multinational oversight, it can be legally and operationally complex to freeze wallets, share sensitive transaction data, or integrate financial monitoring with real-time security operations. In addition, over time, a dollar-based stablecoin could lead to partial dollarization of the Palestinian economy, with uncertain macroeconomic consequences, especially given that many Palestinians continue to depend on the shekel due to trade links and an integrated labor market.
The pros and cons of a digital shekel
The alternative, and arguably stronger, option is to extend Israel’s forthcoming CBDC, the Digital Shekel, to Gaza’s reconstruction framework. The Bank of Israel has already advanced technical and regulatory work on a CBDC. A digital shekel would not introduce a new currency, but rather a new settlement layer for an existing one. As a direct liability of the Israeli central bank, it offers Gazans a level of institutional credibility that privately issued instruments cannot fully replicate. From a national security perspective, digital shekel transactions would settle instantly on a central ledger compliant with international anti–money laundering and counterterrorism financing standards.
Of course, if Israel chooses to pursue this path, it would carry significant political implications. Operating Gaza’s reconstruction through a digital shekel would deepen the integration of the Palestinian economy with Israel’s monetary system. Yet it is important to recognize that this dependence already exists. Palestinian banks depend on Israeli correspondent banking relationships, and Israel already controls the physical flow of banknotes to Palestine. What a CBDC would change is not the fact of dependence, but its form. More Palestinians would gain access to modern Israeli financial tools, broader competition among service providers, and reduced transaction costs, including the elimination of double credit currency conversion when purchasing goods or services in Israel.
Financial demilitarization should be understood as a necessary complement to physical demilitarization and governance reform. Without it, reconstruction funds will continue to flow into an environment that rewards opacity and enables diversion. Digital money, when designed carefully and deployed with clear institutional safeguards, offers a way to align civilian recovery with security objectives rather than trade them off against each other. Gaza’s recovery will depend not only on how much money enters the Strip, but on how that money moves. That is where durable reconstruction must begin.