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You think Bernanke has a tough job?  Try being a central bank with no currency, and a hostile government that doesn't restrict its attacks to pointedly cutting remarks:

"Sometimes people take a gun to the head of a branch manager," says Jihad al-Wazir, governor of the Palestine Monetary Authority. "Then I get a phone call."

The PMA is a most unusual central bank. It lacks a currency and a country. It can't control interest rates or fight inflation, like other central banks. And it communicates with its Gaza branch office by videoconference because Israel regularly blocks the border to PMA officials. Meanwhile, Hamas, the militant Islamist party that rules Gaza, wants to boot out the central bank's leader.

The PMA is playing a critical role nonetheless, pressing banks in the West Bank and Gaza to modernize. Its efforts have made it easier for well-off Palestinians abroad to invest back home. That's a big reason households' bank deposits rose by 20% in 2007, according to the International Monetary Fund.

The PMA also is encouraging enterprise in the territories, where much of the population now depends on make-work government jobs. It aims to turn itself into a "full-fledged central bank" by 2010, meaning one with the ability to manage a currency in case a Palestinian state is created.

I don't think its possible to build a viable state out of the shreds the settlements have left.  But if such a miracle is possible, it will need a solid banking system, with serious standards of corporate government, to repair the ravages of the current conflict. 


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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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