BoI Law Lets Gov't Meddle in Exchange Rates

The new Bank of Israel Law taking shape would allow the government to change the mechanism by which exchange rates for the shekel are set against other currencies.

The Finance Ministry published a draft of the new law yesterday, in which it wrote, "As a rule, the exchange rate [of the shekel] against foreign currencies will be set by the foreign currency market. But the government will be authorized, in consultation with the [Bank of Israel] governor, to determine another method for setting the exchange rate."

Also, the Bank of Israel would be entitled to intervene in the foreign currency market in order to achieve its ends and fulfill its functions, the draft law states.

The government would even be given broad powers to clap caps on the nature of currency deals. "Under special circumstances the government would be entitled, in consultation with the governor, to issue an injunction for a limited period of time that prohibits certain transactions in foreign currency with foreign residents, or outside Israel," the draft law goes on to state.

The bill has already passed the hurdle of the cabinet and will shortly be brought before the Ministerial Legislative Committee. If the committee approves the bill, it will be brought before the Knesset plenum for voting into law.

The law was formulated by the Finance Ministry together with the Bank of Israel after no less than 11 years of snarling disputes between the two bodies over its content. The Prime Minister's Office and the Justice Ministry also had a say in its formulation.

Under the new law, the Bank of Israel's main function remains assuring that consumer prices remain stable. "Price stability is essential for the sake of achieving important goals such as sustainable economic growth and a high level of investments and employment over time," the draft states.