Ex-Bank of Israel Official Scores Dollar-buying Policy

Barry Topf, who helped devise it, says it distorts prices, ‘subsidizes’ exporters.

Barry Topf, the former director of market operations at the Bank of Israel
Ofer Vaknin

Barry Topf, the former director of market operations at the Bank of Israel, told Bloomberg News this week that the policy of intervening in the currency market to weaken the shekel has outlived its usefulness.

Topf, who helped formulate the policy with then-Governor Stanley Fischer in 2008 and left the central bank in 2013, asserted that the dollar-buying was distorting prices and effectively serving as a subsidy for exporters. He urged the central bank to scale back the program significantly.

“I think an exchange rate policy which was intended for the short term and was never meant to be a permanent pillar of policy should be reexamined,” he said in an interview published Wednesday.

The policy was put in place to prevent the shekel from strengthening by intervening in the currency market on a regular basis to buy dollars. Israel enjoys persistent current account surpluses and relatively strong economic growth, but the resultant strong shekel makes Israeli exports more expensive.

The central bank reportedly intervened on Wednesday, buying what sources estimated was less than $100 million. The dollar strengthened somewhat on Wednesday but yesterday was down 0.16% against the shekel to a Bank of Israel rate of 3.762 shekels.

The Bank of Israel defended its policy, in a statement that noted that the country’s major trading partners are still undertaking “extraordinary monetary policy” such as quantitative easing and negative rates.

“Needless to say that when this policy began, in 2009, not many had forecast that extraordinary monetary policy would still be undertaken by major central banks in 2017,” it said.