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In an unusual move, the Bank of Israel yesterday convened 50 of Israel's biggest foreign currency traders and elaborated on its policy regarding the forex market. For the first time, the central bank confirmed the report in TheMarker a month ago that its main parameter is the effective exchange rate of the shekel against the basket of currencies, not the shekel-dollar exchange rate itself.

Governor Stanley Fischer, research chief Karnit Flug and forex department head Barry Topf met with the traders for three hours to describe policy and take questions.

Some of the biggest traders are at Israel's banks. They provide quotes to clients but are also the biggest speculators in the forex market, on behalf of the banks for which they work.

The dealers' main question was when and under what conditions the Bank of Israel decides to intervene in currency trading. They did not receive a clear answer, but did learn some principles.

First and foremost the central bank asks whether its intervention will upset price stability or financial stability. Price stability remains the central bank's uppermost policy goal. But it also aims to stimulate economic growth and jobs. Its interventions are designed to minimize layoffs.

Naturally, the central bank can't fight long-term trends, but it can try to smooth the erosion of the dollar against the shekel. Essentially, the central bank is regulating the exchange rate, by moderating the dollar's slide, which buys time for exporters to acclimatize to the low dollar. Fischer admitted that the bank's influence over the forex market is limited, but it helped exporters weather the hard times of the crisis. As Warren Buffett once said, noted a banker: he's leaving the kids enough to live on, but not enough to fall temptation to do nothing.

Nor is it the shekel-dollar rate specifically that moves the bank to intervene: rather, it's the effective exchange rate of the shekel against a basket of currencies, the central bank officials confirmed.