Forgotten Stories From 70 Years of Israeli Economic History

How the state’s first bills were printed using templates from Ceylon, and other notable accounts since independence

President Reuven Rivlin holds up a 50 shekel banknote.
מארק ניימן / לע"מ

1948: Israel prints first money using Ceylon’s template

Noam Buksbaum

Preparations for issuing the first Israeli banknote began in 1947, the year before the country’s establishment. The nation’s founders suspected – rightly – that Britain would renounce any connection to the Palestinian pound, the local legal tender at the time, and decided that the new nation should have a currency of its own.

Sadly, nascent Israel had no institution with the appropriate financial and technical capabilities. In keeping with the spirit of the times, the solution was found on the thin boundary between statesmanship and breaking the law.

The task was given to the biggest bank in British Mandatory Palestine at the time, the Anglo-Palestine Company (which would become Bank Leumi). Though the APC was technically owned by Zionist institutions, in practice it was a private entity and there was much howling about national money being deposited with businessmen. Moreover, the bank formally operated out of London but its main branch was on the corner of Yehuda Halevi and Herzl streets in Tel Aviv.

The bills were supposed to be printed in the United States, but there was a snag: The Americans refused to print money for a state that didn’t exist yet. However, they did agree to print banknotes with the name Anglo-Palestine Bank. But there wasn’t much time. With all the haggling and the hassles, and since designing a new currency and creating printing blocks could have taken over a year, a shortcut was in order.

Thus arose the idea of using already existing banknote templates. The brand new Israeli – or rather, Anglo-Palestine Bank – notes were printed using plates made for Ceylon (which also gained independence from the British in 1948, and which would change its name to Sri Lanka in 1972). At least they changed the names on them.

It bears adding that some people remember the templates as being Chinese. It’s difficult to reconstruct aspects of hasty decisions made 70 years ago by people under terrible stress. But either way, the notes for Israel were ultimately printed in the early summer of 1948, a bit after Israel declared its independence. They were sent by ship to Europe and flown to Israel from there, arriving in early July.

During the interim period after the declaration and until the new notes arrived, the Palestine pound issued by the British remained in circulation, though the fear was that its value would collapse since its link to the British pound had been abolished. Deeply worried about the prospect of sudden financial crisis, the Anglo-Palestine Bank prepared for that eventuality, taking measures that included printing makeshift notes on ordinary paper here in Israel. Its officials didn’t tell anybody and kept them secret. Since it turned out that they weren’t necessary and were never used, the bank ultimately destroyed them.

The banknotes arrived from Ceylon. The process of replacing the Palestine pound with the new currency began in August and took about a month, with no particular problems. Except of course that the new money didn’t say Israel but rather Anglo-Palestine Bank. People started calling it the Israeli lira, which would indeed become the name of the future – and actually Israeli – currency, until the advent of the shekel. But that’s another story.

1955: The birth of WeizAC, the Israeli computer

Noam Buksbaum

The technology was untested and even Albert Einstein was highly skeptical, but proto-Israelis would have none of that negativism. They would create a local version of the most advanced development at the time: a computer.

The effort actually began in 1947. The investment required for the project was enormous: $50,000, which would be worth about half a million dollars today. Prof. Chaim Leib Pekeris (1908-1993) of Princeton University, who would found the applied mathematics division at the Weizmann Institute of Science, insisted on it. And after some years of discussing and planning, WeizAC (Weizmann Automatic Computer) the Israeli computer was launched in 1955.

“It fired my imagination,” says Prof. Aviezri Fraenkel, who joined Pekeris’ project from the get-go. Though Fraenkel found communicating with Pekeris in English to be quite challenging at first, they managed to build WeizAC, which took up a whole room. As there was zero infrastructure or precedent, they had to rely on improvisation. The components were built in a bicycle repair shop. Moreover, as WeizAC had 2,000 vacuum tubes that disseminated a lot of heat, and the computer had to be built in a special building to keep it cool.

“At first WeizAC was operated 24 hours a day, mainly for Pekeris’ research, but soon enough people who had scorned the pretentious notion began to realize its potential and asked to use it,” Fraenkel recalls. Pekeris did not shy from demanding large sums of money in exchange, which were used to buy more advanced technology, Fraenkel says.

The army was allocated an hour on the computer every night, from 2 to 3 A.M., for intelligence projects it was pursuing. Fraenkel remembers that sometimes the army would ask to use it urgently, but it took pressure from Prime Minister David Ben-Gurion, though the Weizmann Institute management, to get Pekeris to agree. He only conceded because he was dependent on the management for his budget.

1974: How technology giants began their excursion into Israel

Amitai Ziv

Dov Frohman did two things that changed the landscape of Israeli high-tech. The Netherlands-born electrical engineer was the first one to make Israel a critical part of a global technology giant’s strategy.

Like many Israelis, Frohman studied engineering here but went to the United States in the 1960s to further his studies in a place where big things happen. He joined Intel early on and rose high in the company after achieving a number of patented inventions, including the first erasable programmable read-only memory. He persuaded Intel to invest in Israel and build a research and development center in Haifa in 1974.

Motorola, another international giant, had opened shop in Israel earlier, but its research involved mainly military technology, while Intel was after civilian computing technology.

Today Intel is the biggest employer in Israeli technology, with 10,000 Israeli employees working at four R&D centers in Haifa, Petah Tikva, Yaqum and Jerusalem.

Not content, Frohman also persuaded Intel to build a foundry to manufacture and not just design its chips in Israel. Building a foundry is a hugely expensive endeavor and a long-term investment, since it can’t just be packed up and moved.

The State of Israel – and Israeli taxpayers – subsidize investment in Intel’s local plants, but Frohman’s achievements marked a significant macroeconomic step for the country. For instance, in 2016 Intel was responsible for 8% of Israeli technology exports. One could argue that Intel made the idea of investing in Israel legitimate, setting a precedent that would be followed by other mega-companies. These days, local R&D centers are run by the likes of Google and Facebook, Amazon, Broadcom, Qualcomm and many more. Nonresident companies employ 71,000 Israelis, and Frohman and Intel can take much of the credit for that.

1984: Eilat gets a place on the tourism map

Rina Rozenberg-Kandel

Until the first half of the 1980s, Tiberias was the undisputed go-to place for Israeli vacationers. The city was filled with new hotels offering all the amenities one could ask for. There was Lake Kinneret and the absence of good hotels anywhere else in the country, including destinations with obvious natural attractions, like Eilat and the Dead Sea.

Change came in the middle of the decade, when Eilat came into its own. The man who was single-handedly responsible for that was David Lewis, a British Jew who controlled the Isrotel hotel chain until he died at age 87 in 2011. Even today, those who know Eilat divide the southern resort town’s history two periods: Before Lewis and after Lewis.

His connection to Eilat began in 1980, when then-Tourism Minister Gideon Patt met with Lewis in London to convince him to invest in Israel. A committed Zionist, Lewis came for a visit to Eilat, which at the time counted only a handful of hotels. He immediately saw the tourism potential and within four years opened the King Solomon, the first of his hotels in the city.

The King Solomon wasn’t just another hotel. Instead of another tiny property like the Neptune, which had been built in 1969, or the Red Sea Hotel, developed by Eli Papouchado, Lewis’ creation had 420 rooms and set new standards for luxury and service. Four “King’s Floors” were designated for guests who wanted an even higher standard of pampering.

More than that, Lewis brought an entirely new concept to the city – a hotel, like the ones he had developed in Spain, that didn’t offer only a room, a lobby and meals, but an entire experience of entertainment, activities, 24-hour-a-day food and shopping. By the 1990s, Lewish had refocused his business energies from the family business in Britain to Israeli tourism.

Isrotel now has eight properties in Eilat, not to mention different ones elsewhere in Israel. Other hotel chains followed the example and Israel’s Tourism Ministry added investment incentives starting in the late 1980s. Today Eilat is not only the country’s No. 1 resort town for Israelis, but also attracts visitors from around the world. The 2018-19 winter season is expected to draw 177,000 overseas visitors, who will be brought over on 40 to 50 weekly flights.

1994: The first bedroom community is founded

Merav Moran

1994 was the year that people began moving into Modi’in, a new city between Tel Aviv and Jerusalem. This year the population of Modi’in passed 100,000. Yet despite its convenient location and middle-class population, Modi’in has no local economy to speak of. What shopping does exist is mainly at the mall, and though there are two train stations, having a car is a necessity.

Modi’in was built because both Jerusalem and Tel Aviv have precious little room for new housing development, explains Sophie Aldor, the Housing Ministry planner who led the government program to construct it.

Critics complain that the existing cities of Ramle and Lod could have been strengthened instead of creating a new one from scratch. Instead, they say, the establishment of Modi’in weakened them. Aldor says that in those two cities, building new neighborhoods would have required the conversion of agricultural land, while the land on which Modi’in arose was a military firing zone, which was a simpler conversion process.

However, the parks established around the residential areas remain empty most of the day; the industrial zone consists mainly of some offices and warehouses; and public transportation exists but getting around is easier by car. There are no shops on the main streets and the only truly functioning public and commercial arena is the mall. With no local industry, people tend to commute to work outside of Modi’in and return home to sleep.

But without the city, says Aldor, the situation would have been much worse. Before it was built, people wanting a house with a garden moved out of Tel Aviv to Rishon Letzion or Hod Hasharon. Modi’in offers urban density without building on the last open spaces in Israel’s center.