The Palestine Monetary Authority will issue deposit certificates to banks this year to bolster the stability of the $9 billion Palestinian territories’ financial system, Governor Jihad Al Wazir said.

The plan calls for introducing a financial instrument that institutions could trade and that will be guaranteed by the central bank, Al Wazir said yesterday in an interview at Bloomberg’s headquarters in New York. The CD's would be introduced by year-end, he said.

“Banks can buy CD's from the PMA and use them as collateral,” Al Wazir, 46, said. “The banks can exchange the CD's freely with each other and create an inter-banking system.”

Al Wazir is reforming the banking system as Palestinian Authority Prime Minister Salam Fayyad seeks to create institutions that would enable Palestinians to form an independent state. The monetary authority set a minimum capital requirement of $50 million for banks, up from $35 million, and is pushing eight of the 19 banks operating in the West Bank and Gaza to consolidate to meet the demand, he said.

The organization may create an agency like the U.S. Federal Deposit Insurance Corp. and ultimately plans to establish its own currency, said Al Wazir, who’s the closest thing the Palestinians have to a central bank governor.

“The question is, can it compete? I look at it from a technical, practical perspective as opposed to an emotional perspective,” Al Wazir said. In a later Bloomberg Radio interview, he said that bringing back the Palestine pound is “one of the options. Dollarization is another option.”

Stopping Hamas

The monetary authority is also trying to stop Hamas from tampering with Gaza Strip banks. It suspended the operations of all banks in the strip two weeks ago after Hamas seized funds from a local Gaza branch whose management had frozen funds to comply with a global anti-money laundering regulation, he said.

“They realized that if they’re going to interfere with the banking system, all the operations will be suspended, so they backed off,” Al Wazir said of Hamas.

HSBC Holdings Plc is the only European bank that has a branch in the West Bank. Citigroup Inc. is considering opening an office there, Al Wazir said.

Michael Hanretta, a spokesman for Citigroup, didn’t immediately return a message for comment.

Credit in Palestinian banks increased by 25 percent last year and the loan-to-deposit ratio climbed to 38 percent from 28 percent at the end of 2008, Al Wazir said.

Last year the West Bank and Gaza had economic growth of 6.8 percent, according to estimates from the International Monetary Fund in a report dated April 13. This consists of an 8.5 percent growth in the West Bank and 1 percent in Gaza.

Economic Growth

Palestinian West Bank economic gains have been largely driven by donor aid and more private investment is necessary to ensure that the expansion is sustained, the World Bank said.

Al Wazir was born in the Gaza Strip four years before Israel captured the territory in 1967, according to the monetary authority’s Web site. His father, Khalil al Wazir, was assassinated in 1988, when he was Palestine Liberation Organization leader Yasser Arafat’s top deputy.

Al Wazir blames Israel for the killing; Israel’s Defense Ministry declines to comment on the subject.

While the father, known as Abu Jihad, ran operations against Israel from PLO headquarters in Tunis, his son studied electrical engineering at Marquette University, a Catholic institution in Milwaukee, Wisconsin. Later he earned a doctorate in business administration at Loughborough University in Leicestershire, U.K.

Fayyad has led the Palestinian Authority’s interim government since the breakup in 2007 of a partnership between the secular Fatah party and the Islamic Hamas movement. Hamas has since ruled the Gaza Strip, while the West Bank is controlled by Fatah and its chairman, Palestinian Authority President Mahmoud Abbas.

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net