Last update - 00:00 31/05/2007
Bank of Israel calls on public to move to shekel-based economy
By Tal Levy, TheMarker
Trying to cope with a weakening dollar, the Bank of Israel recently entertained the idea of "forcing" the public to conduct business in shekels by cancelling its representative rate of exchange, in expectation that its cancelation is sufficient to root out the customary yoking of prices to the dollar.
The Bank of Israel held a meeting between treasury director general Yoram Ariav and governor Fischer, hosting representatives from various sectors that customarily quote prices in dollars: lawyers, accountants, real estate firms and others. The impression was that the market has understood that dollar linkage is no longer relevant, but most are wary of being the first to move to shekel-based economics.
The strengthening shekel should have made Israel proud. But instead, Israeli households are following the dollar's sinking rate of exchange with trepidation. "All over the world, people are happy their currency is strengthening, and only in Israel is this seen as a crisis. It is simply unbelievable," said Serhan Cevik, the Morgan Stanley investment bank analyst who reviews Israel.
The weakening dollar has two main repercussions. On the national level, the Bank of Israel finds it difficult to meet its inflation target of 1-3 percent, since every drop in the dollar exchange rate translates into lowered inflation.
On the personal level, many prices are still linked to the dollar rate. But there is no longer any justification to the dollar linkage, the reason that inspired Bank of Israel governor Stanley Fischer to issue a simple call to the public: "Start using shekels".
Since the beginning of 2007, the dollar has fallen 12.5 percent.