A series of coordinated attacks that began on October 7, 2023, has sent Gaza’s economy into shambles, with the United Nations Trade and Development (UNCTAD) calling it “the worst economic collapse ever recorded.” But amid this catastrophe, officials remain optimistic about the region’s recovery following the rise of new financial tools, with stablecoins being eyed as a potential engine for Gaza’s rebuild.
Within those two years after the attacks in the Gaza Strip, the world saw Gaza’s gross domestic product (GDP) sink 83% to $362 million, with accumulated losses reaching 87% as major infrastructures and essential assets were severely damaged by bombings, according to an UNCTAD report. The current state of the local economy was so severe that inflation skyrocketed 238%, unemployment hit 80%, and 2.3 million residents were plunged into poverty.
Similar to countries like Myanmar, Japan, and Pakistan, Gaza is heavily reliant on cash, and with the ongoing conflict, it has become harder for people in the region to depend on physical money alone. Apart from a shortage of banknotes, Palestinians in Gaza were left with torn cash, rendering it useless for transactions.
Furthermore, Gaza faces electricity outages and weak internet services, making digital banking difficult despite widespread adoption.
As economic turmoil persists, authorities are rushing to find ways to save Gaza from complete collapse, with officials reportedly working with the administration of United States President Donald Trump on the possibility of issuing a stablecoin pegged to the U.S. dollar.
According to a report by the Middle East Online news outlet, citing an article released by the Financial Times, there were discussions with the U.S.’s Board of Peace, the body tasked with overseeing Gaza’s reconstruction, about creating a new USD-backed stablecoin with help from Gulf Arab and Palestinian firms specializing in digital currencies.
While details about the new stablecoin are vague and “nothing definitive” has been finalized, officials with knowledge of the matter said that the planned asset would not serve as a new form of currency in Gaza. It is also unclear whether the stablecoin would serve only as temporary relief to the region’s liquidity crisis or become a permanent tool to Gaza’s financial sector.
The U.S. has openly advocated for the broader use of USD-backed stablecoins to bolster dollar dominance, an intention evident in the enactment of the GENIUS Act, with similar regulations in the pipeline to ensure that the U.S. has a strong foothold in the growing stablecoin market.
“This will not be a ‘Gaza Coin’ or a new Palestinian currency, but a means to allow Gazans to transact digitally,” said an official who refused to be identified.
Financial empowerment or oppression?
While central banks across the globe are now actively studying and monitoring stablecoins and their integration into the traditional finance (TradFi) system, an independent organization based in Geneva, Switzerland, is pushing back against the planned USD-backed stablecoin in Gaza, branding it as a “new generation of silent genocidal weapon.”
The Euro-Med Human Rights Monitor stresses the significant risks of forcing Gaza to transition into a digital economic model with no Palestinian sovereignty, adding that it would only heighten impoverishment and displacement in the region.
The organization is not the only critic of the planned project, as some have also voiced their concerns, including the possibility of widening the divide and making it harder for Palestine to maintain economic links with Israel.
While the planned stablecoin has drawn sharp criticism, it also has its fair share of supporters who believe that tokenized assets would be beneficial for Gaza’s commerce and reduce the influence of middlemen controlling banknotes in the territory.
Meanwhile, officials have allayed fears surrounding the project, claiming that the proposed USD-backed stablecoins are nothing more than a tool to help facilitate digital transactions in the region.
Watch: Richard Baker on engineering a smarter financial world with blockchain
Source: https://coingeek.com/stablecoins-emerge-as-lifeline-for-gazas-war-torn-economy/
