Introduction
Gaza’s financial system was fragile long before October 7, 2023. Its economy ran mainly on cash and operated largely outside international financial networks. Most residents had little access to credit, digital payments, or formal banking. Liquidity shortages were chronic, and trust in financial institutions was low.
The war has compounded each of these weaknesses. Physical destruction of banking infrastructure, prolonged disruption of commercial activity, and deepening uncertainty about whether banks can hold or intermediate funds have pushed the population further toward informal channels. That shift is unlikely to reverse when reconstruction begins.
Adding complexity to the situation, the Palestinian Monetary Authority nominally oversees financial activity, while Hamas—a United States–designated terrorist organization—controls day-to-day economic governance. This divided authority undermines fiscal enforcement, weakens local institutions, and fragments the channels through which humanitarian aid and external funding move. Aid flows rely heavily on physical cash and chains of intermediaries, reducing efficiency and increasing the risk that armed groups seize funds directly or impose informal taxation. The Palestinian Authority (PA) is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), the regional branch of an international watchdog organization focused on countering money laundering and terrorist financing. While this membership signals a desire for institutional involvement, the PA has not completed the task force’s evaluation process and remains opaque regarding its enforcement capacity.
Policymakers in the United States and Israel increasingly recognize that existing financial mechanisms in Gaza cannot support reconstruction, oversight, or sustained aid delivery. Alternative infrastructure is needed. This memo assesses the viability and risks of one option, implementing digital wallets.
Emerging Digital Payment Use in Gaza
Amid systemic collapse, digital payment usage in Gaza expanded rapidly as humanitarian actors and local providers sought alternatives to physical cash. The balance Gazans held in digital wallets increased from approximately $40 million in January 2025 to more than $115 million by June, with over 790,000 active users. One payment platform, iBURAQ, processed roughly 2.8 million transactions totaling over $550 million during this period, indicating increased merchant adoption, particularly amid other economic constraints.
Humanitarian agencies have played a central role in this shift. UNICEF reports that approximately 75 percent of humanitarian cash recipients in Gaza now receive assistance exclusively through digital payment channels, driven by lower liquidity fees, greater reliability, and broader business participation. The United Nations Office for the Coordination of Humanitarian Affairs’ Cash Working Group reports that its humanitarian aid partners digitally issued more than 325,000 multi-purpose cash assistance payments to over 250,000 households.
International organizations’ adoption of digital payments was an emergency response rather than an attempt to create a formal financial infrastructure. But the systems’ rapid scaling and broad local acceptance suggest that what began as a crisis response may point the way toward durable financial governance and oversight solutions that can succeed in conflict conditions.
Benefits and Opportunities
US Treasury Department guidance increasingly emphasizes traceable payment mechanisms as a risk-mitigation tool in jurisdictions prone to financial crime. A carefully designed digital ecosystem could address specific weaknesses in Gaza’s current economic environment. Below are three benefits digital wallets can provide, even amid ongoing political disputes or active conflict.
1. Easing oversight. Digital wallets generate transaction records that improve visibility over financial flows. While no system can eliminate illicit activity, digital transaction trails may deter diversion and reduce reliance on cash networks, which are more difficult to monitor.
2. Regularizing economic activity. Digital wallets may expand civilian economic participation in a fraught environment and provide short-term economic stabilization without requiring a comprehensive political settlement. Direct access to a secure channel for receiving wages, humanitarian assistance, or payments for goods and services could reduce dependence on untrustworthy informal channels.
3. Restricting terror funding. In Gaza, shifting economic activity away from cash could limit Hamas and other armed actors’ financial leverage. These groups derive significant economic power from diverting or seizing aid distribution and taxing informal financial activity. Digital systems will help constrain their ability to do so.
The United States has not endorsed a Gaza-specific digital payments framework. But it has increasingly relied on digital cash delivery mechanisms to maintain humanitarian access in environments with ongoing conflicts or high risk of terrorist financing. Treasury guidance on sanctions compliance consistently highlights the value of traceable, auditable payment channels over bulk cash distribution. In this way, payment infrastructure design is an instrument of economic statecraft rather than a purely technical issue.
Relevant US Case Studies
The question of how to sustain financial flows in conflict environments without reinforcing political authorities or enabling illicit finance is not unique to Gaza. US policymakers have previously confronted similar structural constraints: degraded banking systems, contested governance, high diversion risk, and the need to balance humanitarian access with enforcement of sanctions and reduction of terror finance concerns.
American financial assistance operations in Afghanistan and Ukraine illustrate how adjustments to financial infrastructure—in particular, the implementation of digital and semi-digital payment mechanisms—can help manage these tensions.
Afghanistan
After the Taliban takeover in August 2021, Afghanistan’s financial system effectively stalled. The United States froze roughly $7 billion in central bank reserves, and international financial organizations cut the country’s correspondent banking relationships. As a result, liquidity evaporated, and banks imposed strict withdrawal limits. Meanwhile, humanitarian needs surged, with more than 20 million Afghans in need of assistance. International aid providers, therefore, needed a way to move funds into a country where the formal banking sector had broken down without recognizing the de facto government or exposing donors to sanctions and diversion risks.
To improve oversight and reduce reliance on bulk cash, these organizations shifted toward mobile money platforms, vetted intermediaries, and controlled transfer mechanisms. This model found some success. But its reliance on digital infrastructure limited its reach, and many Afghans in rural areas still depended on informal cash networks. Liquidity constraints persisted, and aid organizations continued to face compliance friction and delays.
Implications for Gaza
The Afghan case shows both the utility and the limits of digital payment substitutes. Payment architecture can mitigate institutional collapse. But structural constraints, such as limited access to digital infrastructure and political fragmentation, diminish these systems’ effectiveness.
Gaza faces similar constraints: degraded financial infrastructure and contested political authority. The Afghan experience provides three practical lessons.
-
Aid delivery can circumvent sovereign banking paralysis by creating alternative payment rails that operate separately from weak local institutions.
-
Donors can preserve transaction visibility and sanctions compliance without conferring political legitimacy on governing actors they do not support.
-
Shifting liquidity away from bulk cash reduces opportunities for diversion and informal taxation by armed groups. Payment design, in this context, serves as a mechanism to separate operational continuity from political recognition while limiting opportunities for financial exploitation.
Ukraine
Ukraine’s integration of digital identity and payment systems into its national e-governance platform, Diia, enabled citizens to access public services and receive emergency transfers even after Russia’s full-scale invasion disrupted physical infrastructure, including banks and administrative offices. Digital identity verification reduced fraud risk and enabled rapid payment scaling at a critical moment.
These systems withstood sufficient pressure. Russia’s cyberattacks compounded the disruptive effects of its kinetic strikes, further limiting connectivity. And not all citizens—particularly among older or more rural populations—were fully integrated into the digital ecosystem. Still, Ukraine demonstrated that digital public infrastructure can preserve administrative continuity under military stress.
Implications for Gaza
In the wake of Ukraine’s experience, many governments now view digital payment systems as core state infrastructure. When governance capacity is under attack but has not fully collapsed, digital payment systems can reinforce state resilience and social trust while sustaining central control over financial systems. They, therefore, reduce the likelihood that wartime conditions will lead to financial or administrative paralysis.
Payment systems also shape security outcomes. Control over transaction rails ensures visibility into financial flows, constrains diversion and illicit finance, and reinforces sanctions compliance. In conflict settings, liquidity management is a key governance tool. Ukraine has proven that robust digital payment infrastructure can allow a weak or contested government—like Gaza’s—to maintain economic leverage, oversight, and stability.
Risks and Concerns
Aid donors—either states or international organizations—face reputational and political risks if any of these failures lead to significant coercion or diversion, even at a limited scale. Policymakers should consider three main risks associated with deploying digital wallets in Gaza.
1. Infiltration. Armed groups whose revenue streams are threatened could seek to infiltrate and undermine systems, exploit vulnerabilities, and coerce users. Any digital ecosystem would operate in a contested environment with major enforcement gaps and a high risk of intimidation.
2. Insufficient adoption. Behavioral and adoption risks are also significant. Encouraging civilians and merchants in a highly cash-dependent economy to trust digital alternatives requires reliable infrastructure, education, and incentives. Without broad uptake, digital wallets risk becoming a parallel system with limited impact.
3. Technical failures. Electricity shortages, connectivity disruptions, and cyber vulnerabilities could all rapidly undermine confidence in digital systems. A single high-profile failure could discredit the concept and reinforce opposition to future experimentation.
From the Israeli perspective, authorities focus on preventing the diversion or exploitation of funds by terrorist actors like Hamas or its affiliates and maintaining full visibility into financial flows. Israel may also be reluctant to fundamentally alter its existing financial oversight arrangements.
US policymakers share these concerns but maintain more expansive humanitarian objectives, including sustaining critical aid flows and mitigating economic collapse. This tension has led to a preference for controlled, closely monitored pilot programs in digital payments, designed to limit exposure while generating operational lessons for high-risk environments.
Conclusion
Palestinian civilians would be the primary users of any digital payment system. While digital platforms have demonstrated operational viability in the absence of stable governance, the question of which authority holds the regulatory and financial mandate to oversee such a system in Gaza remains unresolved—and carries political, not merely technical, consequences. For US authorities, this means effective design and oversight are crucial for the system’s success. Any pilot program would need to be embedded within the Treasury Department–aligned safeguards, including robust transaction monitoring, transparency standards, and clearly defined accountability mechanisms that protect against diversion and sanctions exposure.
Digital systems can improve auditability, narrow opportunities for illicit finance, and sustain economic flows under constrained conditions. They cannot resolve deeper questions of governance, taxation authority, or political representation.
These questions will recur in other fragile or contested territories where formal banking is degraded or politically constrained. China has already incorporated digital payment platforms into its broader external economic strategy, pairing financial infrastructure with technology and infrastructure exports. If the United States treats digital wallets as a narrow technical tool rather than a component of economic statecraft, it risks falling behind in shaping the transactional architecture that underpins future engagement. Control over payment systems increasingly influences political leverage and operational freedom in conflict and post-conflict environments.