Israeli left-wingers, who could teach graduate courses at the BDS Academy, have been touting the “falling shekel” as proof that Justice Minister Yariv Levin’s “regime revolution” is scaring investors away from the local market. Indeed, the shekel, which last summer was gaining on the dollar at remarkable rates of close to 3 shekels to $1, to settle at around 3.3 shekels for most of the fall, has been dipping in the past two weeks to as low as 3.7 shekels to the dollar.
Three takeaways before we get to the story at hand: 1. A sinking shekel is fantastic news to Israeli industry, making it much easier for Israeli goods and services to compete on the global markets; 2. It’s also been fun for Israeli Americans, especially pensioners from the US living in Israel who have seen their monthly income getting cut sharply last year; and, 3. Israelis living on their monthly shekel salaries are being forced to cancel their vacation trips abroad which have become prohibitively expensive all of a sudden, and they may also have to cancel their orders on Amazon and AliExpress.
Back to our report: it appears that some unknown market entity has been buying up billions of shekels in an attempt to restore its bygone strength. Only one entity can perform this clandestine operation: the bank of Israel, which over the past few years has been buying up dollars to achieve the reverse effect, to bring down the shekel that was making life difficult for the local industry.
We were told only recently that the central bank was sitting on more than $200 billion – and it stands to reason that by now it has lightened the load considerably.
The results: as of Thursday morning, the shekel has dipped as far down as 3.59 to one dollar and is hovering currently at around 3.6, to remind you, that’s down from 3.7.
The Central Bank keeps mum on the speculations that it is the entity behind the dollar dumping. Remember, a stronger shekel is not in the interest of Israeli industry, and those billions of green bucks saturating the local market are basically a populist move to please Israeli online shoppers.
Oh, yes, there’s also the price of gasoline. A weaker shekel also means higher gas prices. Oops…
As to those claims by left-wingers that all of the above was caused by Yariv Levin – it’s kind of fake news. While it is true that 10 out of Israel’s 80 or so hi-tech “unicorns” are establishing their headquarters on an island nearby, either on Cyprus or in Greece, it’s also true that the plans for the move were hatched well before the November 1 election. The real reason for the drop in the shekel’s value has to do with why it was picked by investors in the first place.
Since the outbreak of the Covid-19 pandemic, traders chose Israel and the shekel as a safe haven for their money. Israel had the most sensible public health policy, and as a result, its economy recuperated faster than in other OECD countries. Investors sought stability, and Israel was offering stability galore.
But then, the US Federal Bank started raising interest rates to combat inflation, and as those rates climbed, so did the flight of capital from Israeli banks increase. Raising interest rates is a recessionary move and can bite you where you don’t want to be bitten, but the feds see inflation as today’s problem and would deal with the recession later. The Bank of Israel has also been raising interest rates, but more moderately––thank God. Today, your money would yield a 4.75% interest in America, compared to “only” 4.25% in Israel. Obviously, you’ll get a little less cash in the hand in both countries, but you get the point as seen through the average investor’s lizard brain: America better, put lettuce in America.
As Abraham Lincoln, 16th President of the United States, once said (to the Wisconsin State Agricultural Society in Milwaukee, in 1859): “It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: ‘And this, too, shall pass away.’ How much it expresses! How chastening in the hour of pride! How consoling in the depths of affliction!”
Works for me.
Update – March 2023: Financial reports on the Bank of Israel’s foreign reserves seem to indicate that the BOI didn’t intervene. It now appears that Israeli institutions took advantage of the rates to exchange their dollars to shekels.