The shekel is finally gaining international recognition, and within three months it will become fully convertible in the international currency markets, along with 15 other currencies.
The Mexican peso also is set to join the list. These two additions will bring the list to 17.
This means that Israel's shekel will be traded in the global markets, with international financial institutions and speculators buying and selling it in exchange for any of the other 15 convertible currencies of the developed nations. Also, shekels will be available at all the major commercial banks in about 80 developed and developing nations around the world.
The change improves Israel's status among institutional and private investors, and no less importantly, among the international credit rating agencies Moody's, Standard and Poor's, and Fitch. It will significantly reduce the exchange-rate risks that Israel's financial sector faces in the international marketplace.
Even now, many institutions, including the International Monetary Fund, consider Israel's economy to be "developed," rather than "emerging." The FTSE Group, a major securities-index operator, even took the world markets completely by surprise last September, choosing to upgrade technology-heavy Israel, rather than South Korea, from advanced-emerging to developed.
The decision to render the shekel fully convertible belongs to CLS Bank, where CLS stands for "continuous linked settlement." Based in New York, CLS is a multi-currency bank supervised by the U.S. Federal Reserve, and it serves as an international clearinghouse for inter-currency transactions. It manages the biggest clearing system in the world, and was founded precisely in order to minimize foreign-currency clearing risks. The moment Israel becomes a member of CLS, Israel's commercial banks join its organization, too.
The process of making the shekel convertible accelerated when Stanley Fischer was named to head the Bank of Israel, on May 1, 2005. A year later, CLS's chiefs secretly visited Israel, at Fischer's invitation, to examine the country's economic and monetary status, and mainly to gauge the strength of the shekel.
CLS named two conditions before making the shekel convertible. One was that the Bank of Israel adopt an RTGS - Real Time Gross Settlements - system (the "Zahav"), which it did months ago. The other was that Israel enact a settlements and clearing law, which passed the Knesset last week.
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