2.1 IntroductionThe central bank, Bank for Banks, Lender of last resort or Government Bank; can be defined as a government institution that manages and supervises the banking sector of a country. The central bank determines the country's monetary policy using various monetary tools: open market operations, discount rate and reserve requirement ratio. Such tools are of vital importance in the process of combating the two economic phenomena that any economy in the world encounters: inflation and unemployment, and thus improving the economic situation and mitigating potential financial conflict. Therefore, a strong central bank in Palestine is absolutely indispensable to support vigorous economic growth in West Bank, Palestine. Therefore, the Palestinian Monetary Authority (PMA) – the emerging central bank – was established in Ramallah by an act of the Palestinian parliament council, law number (2) of 1997 which outlined the full authority of the PMA; “Issue the national currency, regulate banking activities, provide liquidity to banks, serve as a financial agent for the Palestinian National Authority, regulate the activities of money changers, and develop and regulate monetary and credit policies.” This section is divided into two main parts; the first discusses the evidence observed from research studies and what has been written about the monetary policies of the central bank and its key functions, the other focuses on the Palestinian context, in other words, explores the declared capabilities of the Palestinian Monetary Authority in providing liquidity guarantee to the banking sector in Palestine and the lack of confidence in its policies and strategies by local banks.2.2 Monetary PolicySecond (Pailwar, Veena K....... half of the document ..... .returns to seeking investments with higher risk; this could threaten the stability of the financial system. It is also possible that the relevant intervention of central banks in the interbank lending market and the indulgence in providing liquidity will reduce the motivation of some of them. banks to deal with imbalances and delay their consolidation. Others argue that the market's sensitivity to central bank movements has created a state of dependency, or perhaps even dependence, on the facilities provided and an increased demand by investors for collateral. that central banks remain present in the market for a prolonged period. periods of time. This may be in contradiction with the needs of the economy as a whole, with the foundations of sound monetary policy and even with the financial soundness of central banks themselves” (Annual Report of the Palestinian Monetary Authority, 2012)