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Last update - 15:34 05/06/2008 Treasury buying up cheap dollars By Sarit Menahem Tags: Treasury, Sollar, shekel  The dollar climbed 1.75 percent against the shekel in the foreign currency market Wednesday, after the Finance Ministry intervened by buying up hundreds of millions of dollars. The representative rate of the dollar against the shekel closed at NIS 3.325. The move by the ministry, which is headed by Minister Roni Bar-On, brought the greenback's appreciation against the shekel to 2.75 percent over three business days. The move was based on pure fiscal motives, not specifically to help exporters or to affect exchange rates at all. Simply by taking advantage of the present exchange rate -the weak dollar and the strong shekel- the treasury could get many dollars for fewer shekels, and then use the dollars to help repay debts at a relatively low cost. "At the present exchange rate of the dollar, buying dollars saves the state money," explained accountant-general Shuki Oren yesterday. "When the shekel is expensive it creates an opportunity to repay debt at low cost." Advertisement Oren noted that the treasury's moves do impact the foreign currency market, but "that isn't our purpose. The only purpose behind the move is to take advantage of the appreciation of the shekel against the dollar to lower Israel's external debt." Moreover, Oren clarified, the treasury may not be done yet. "If the dollar continues to trade at present levels, we shall take advantage of the opportunity to manage the national debt efficiently, and shall continue to arm ourselves with dollars," he said. Even if the treasury doesn't mean to affect the forex market, when a bull barges into a china shop, things will happen. The sudden advent of a big player into the local forex scene was evidently the cause behind the dollar's sudden burst upward against the shekel. So, isn't the treasury cutting off the branch on which it sits? It wants to buy cheap dollars, after all, but it's making them more expensive. "I bear direct responsibility for managing the State of Israel's debt, and at this point in time, we're taking advantage of the dollar's drop, because our current payments are lower," said Oren. "However, the appreciation of the dollar against the shekel won't be cause for regret. A strong shekel weighs on manufacturers and exporters." The treasury didn't buy dollars directly: it acted through forward contracts, in which the accountant-general swapped dollar debts maturing at the end of 2008 for shekels. The forward transactions were carried out through foreign banks, and do not involve any immediate outlay. In fact, at this stage, the foreign banks bear the costs. In parallel with swapping the short-term debt for shekels, the treasury sewed up forward transactions involving dollar-denominated debt maturing in up to 10 years' time. The transactions fixed the exchange rate at which Israel will redeem the debt throughout the following 10 years. Therefore, even if the dollar's exchange rate rebounds against the shekel in the future, the State of Israel will still be repaying on convenient terms. The treasury isn't alone. Three months ago the Bank of Israel started intervening in Israel's foreign currency market too, though in its case the stated motive was to increase Israel's foreign currency reserves by $10 billion over three years. The central bank is achieving that aim by buying around $25 million per business day on the market. The treasury has notified the Bank of Israel of its dollar purchases. The central bank move, which constituted a sharp reversal from previous Bank of Israel policy not to intervene in the forex market, brought mixed reviews. Exporters and manufacturers generally applauded it, but others fretted about the potential exploitation of the effort by speculators. Bookmark to del.icio.us   Sign of life Family of abducted IDF solider Gilad Shalit receives new sign of life. Happy Jews San Francisco museum details positive impact of Jews on city.   1.   Who are the monkeys in this monkey business? 13:05  |  S 05/06/08   2.   crushing palestinian economy even further 19:59  |  john 06/06/08   3.   re:crushing palestinian economy even further 03:35  |  L.W. 07/06/08   4.   This will stabilize the shekel against the dollar - good 10:51  |  Lemmings Hotline 08/06/08   5.   crushing palestinian economy even further 14:44  |  john 08/06/08   6.   It is time Israel blackmails world like Arabs/Iran do with oil 08:33  |  Genuine Tosefta 09/06/08   7.   # 6 GT 18:08  |  Axel 09/06/08   8.   Iran threatening Israel with nukes? 21:44  |  Tug 09/06/08

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