The Bank of Israel recorded losses of NIS 17.9 billion in 2010, compared to a profit of NIS 1.4 billion in 2009. The central bank released its financial statement for last year yesterday, and said the profit and loss figures were really only on paper - and were the result of having to present the figures in shekels.
Almost all the paper loss, NIS 17.6 billion, is due to exchange rate fluctuations. As the shekel strengthened during 2010, the Bank of Israel's enormous dollar holdings became worth less and less, and this accounts for the vast majority of the loss. In fact, the shekel was at a particularly high level against the dollar on December 31, 2010. The Bank of Israel's foreign currency reserves totaled $70.9 billion at the end of 2010, up from $60.6 billion at the end of 2009, as Stanley Fischer, the governor of the Bank of Israel, continued to buy large amounts of foreign currency on the open market to help keep the shekel from appreciating further.
The central bank said that if its balance sheet was redone yesterday after the shekel weakened against both the dollar and euro due to the events all over the Middle East, the loss on paper would now be only NIS 7.6 billion.
But many economists disagreed with the central bank's explanation and said it is necessary to ask whether the Bank of Israel's policy of purchasing dollars was really worth such a loss, on paper or otherwise.
The central bank's balance sheet totaled NIS 274 billion at the end of last year, compared with about NIS 252 billion at the end of 2009, an 8.6% increase. The figure at the end of 2008 was only NIS 169 billion. The vast majority of the growth was the result of the ballooning of the central bank's foreign currency reserves.
The management of the foreign exchange reserves yielded a profit of about $0.8 billion, about NIS 2.9 billion in shekel terms, compared with about NIS 5.2 billion in 2009. The drop in profit in 2010 compared with that in 2009 was due mainly to significant capital gains recorded in 2009 from the decline in yields in the world markets, and to the increase in yields toward the end of 2010.
The Bank of Israel spent about NIS 450 million in 2010 on staff wages and pension rights in 2010, covering about 1,600 current and former employees, compared with about NIS 804 million in 2009.
But the 2009 figures included a one-time update of the pension liabilities and retirement payments.
Other expenses included interest paid to the state, and costs for minting and printing money, as well as general expenses.
"The Bank of Israel's financial results, like those of other central banks around the world, derive from its activities to achieve its objectives determined in the Bank of Israel Law: price stability, growth, and the support of financial stability, and are not aimed at maximizing the Bank's financial profits," wrote the Bank of Israel in a statement.
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