Until 1918, Ottoman Levant was an integral part of the Ottoman Empire and therefore used its currency, the Ottoman lira. The Egyptian pound was first introduced in Egypt in 1834. Following the institution of the British Mandate for Palestine, the Egyptian pound also circulated, alongside the Ottoman lira. To end the confusion that had arisen as a result of the twin circulation of Turkish and Egyptian money in the territory, in 1927 the British authorities established the Currency Board for Palestine, which introduced the Palestine pound, equal in value to the pound sterling, which was legal tender in Mandatory Palestine and in Transjordan, which was technically a part of the British Mandate, though having an autonomous local administration.
All the denominations were trilingual in Arabic, English and Hebrew. The Hebrew inscription includes the initials Alef Yud after "Palestina", for "Eretz Yisrael" (Land of Israel).
It so happened that the new Palestinian currency was released, which was a great ordeal. The Palestinian currency which was coined especially for Palestine, and issued both in banknotes and coins, had the phrase “the land of Israel” written on it in Hebrew. Despite this hint, we accepted it, and the Arabs of Palestine dealt in it in what was almost an acknowledgment that Palestine was the land of Israel.
Unlike the pound sterling in the United Kingdom, and the sterling-equivalent Cypriot pound in British-run Cyprus, the Palestine pound was from its introduction a decimal currency, albeit with each pound divided into one thousand parts, called mils. This system was derived from a proposal made in 1855, by William Brown, a member of the United Kingdom parliament, that the United Kingdom pound should be decimalised by being divided into one-thousand parts, each called a mil.  Although this system was never adopted in the United Kingdom, it was used by the British colonial authorities first in Hong Kong from 1863 to 1866, and then in the British Palestine Mandate from 1926 until 1948. It was also adopted in Cyprus in 1955, where the Palestinian pound had briefly been introduced as legal tender, following a currency shortage in 1943.
The Currency Board was dissolved in May 1948, with the end of the British Mandate, but the Palestinian pound continued in circulation for transitional periods:
- In the West Bank, the Palestine pound continued to circulate until 1950, when the West Bank was annexed by Jordan, and the Jordanian dinar became legal tender there. The Jordanian dinar is still legal tender in the West Bank along with the Israeli shekel.
- In the Gaza Strip, the Palestine pound continued to circulate until April 1951, when it was replaced by the Egyptian pound, three years after the Egyptian army took control of the territory.
The Oslo Accords (1993) provided that the Palestinian Authority will not issue its own currency and will use the Israeli or Jordanian currencies. Today, the Israeli new shekel and Jordanian dinar are the currencies in use in the Palestinian territories. The shekel is the main currency used in Gaza and the primary currency for retail transactions in the West Bank. The dinar is used in the West Bank for savings and durable goods transactions. The United States dollar is also sometimes used for savings and for purchasing foreign goods. The Palestinian Authority can issue postage stamps and these are valued in terms of the Palestine pound, which Palestinian economists and officials regard to be a still-existent (though at present "dormant") currency, to be revived after Palestinian independence. In practice, prices in the Palestinian territories are quoted in Israeli currency.
The Palestinian Authority and Palestine Monetary Authority were considering issuing new banknotes and coins in 2010 and 2011 as part of a broader push by Prime Minister Salam Fayyad to make Palestine a viable independent state. The PA and Palestinian Monetary Authority abandoned the idea of an independent Palestine pound in 2011.