Who Stands to Gain as Dollar Plunges Against the Shekel?

Businesses reportedly setting their own rates above the 3.285 listed by BOI, while others are 'shekelizing.'

The dollar tumbled against the shekel Tuesday, after the Bank of Israel raised Israeli interest rates by a quarter-percent the night before.

The dollar weakened by 1.44% to NIS 3.285 shekels in the immediate aftermath of the rate cut, to monetary interest of 3.5%. But not everybody is blindly bowing to the official exchange rates set by the Bank of Israel.

The dollar's slide against the shekel has slammed profit at a host of businesses that do business in or link to the dollar. But before whipping out your handkerchief to wipe away tears, you might want to applaud the creativity of the businesses' response.

Some simply set fictitious exchange rates, usually NIS 4 to the dollar or as much as NIS 4.20. Others took advantage of the end of the fiscal year 2007 to jack up their rates in dollar terms. Omer Ben-Zvi, a partner at Israeli-Ben-Zvi, explains openly that after contending with the slipping dollar for two years, the firm simply set an exchange rate of NIS 4.15 per dollar. "We talked with our customers beforehand and explained that our expenses are in shekels," says Ben-Zvi. "Everybody understood and accepted the move."

Odelia Levy-Ettinger, a lawyer at Levy-Ettinger, also says that the firm's clients accepted the artificial exchange rate of NIS 4 without argument. Ben-Zvi adds that the main problem is with foreign clients, who are less amenable to accepting a price hike based on the weakness of their home currency. "We don't have a solution for that yet," she warns. It is true though that even so, Israeli lawyers generally charge a lot less than their American or European peers.

Artificial exchange rates aren't the exclusive province of lawyers. S., a video editor, says that in his sector, the exchange rate has been set at NIS 4.20. "Everybody charges at that rate," he says. "Editors, directors, cameramen and producers." But if you show signs of financial stress, you'll get forced back to the representative rate, he admits. However, these days, more and more video-industry people are "shekelizing," says S.- and pricing their services in the humble shekel. He, too, has shekelized; instead of charging $850 for a shift, he says, he asks for NIS 3,000. "It's also happening among the grips," he says, which are usually the most tightly organized guild in the industry.

"Pricing in dollars had been an inexplicable Israeli fiction," says Naor Mann, co-CEO of Real Commerce, one of Israel's biggest Web site-building companies. It adopted the local currency at the end of 2007. "The whole industry had been working in dollars for absolutely no reason," Mann says. "There's no reason for a software company to become a forex trader." Nor does Mann believe that companies will resume dollarizing their business even if the greenback rebounds.

The word in the First International Bank foreign currency trading room is that the shekel-dollar exchange rate could fall to 3.25 shekels or less if the central bank does not aggressively intervene in foreign currency trade.

The advertising industry had also been notorious for pricing itself in dollars, and has moved fully to the shekel. "Sometimes there are relics of prices in dollars, but even then the exchange rate is NIS 4 or NIS 4.20," says Yair Geller, chairman of Pirsum, the Israel Advertising Companies Association. "Until a year ago the budget of ad campaigns were set in the dollar, but that's changed, too," he adds.

Retainers, namely yearly flat fees that companies would pay to ad agencies, had also been priced in dollars, naturally. No more. Geller views the end of dollarization as crucial to stabilizing the advertising industry. "Our biggest outlay is salaries," he explains, "and salaries are denominated in shekels. Therefore, the industry can't handle changes in the exchange rate. We provide our services locally, and there's no sense in pricing things in a foreign currency." However, there are some companies losing money because they're tied tight to contracts denominated in dollars.

Ifat, a monitoring company that tracks ad companies and budgets, still works in dollars - but not at the representative rate. It does its math according to NIS 4.20 to the dollar.