Israel's economy has never been stronger and it is one of the countries with the highest foreign currency reserves in the world.
Bank of Israel (BOI), the central Bank, announced at the beginning of the month that its foreign reserves have broken yet another record, 111,051 million U.S. dollars at the end of September.
"This is being done in order to reduce the volatility of the Shekel (new Israeli Shekel, ILS) vis-à-vis the U.S. dollar and other currencies," says Professor Leo Leiderman, from the Economic department at the Tel Aviv University. He was also the Senior Director of the BOI Research Department.
This is not expected to change, according to Shlomo Maoz, a prominent Israeli economist who has held leading positions in private firms and several public service positions.
"As the foreign reserves are greater, the stability is stronger. This will lead to an even higher credit score which will lead to even more foreign currency entering the country," Maoz told Xinhua.
The strong Israeli Shekel, versus the weak U.S. dollar, has a severe impact on Israel's traditional industries, at the expense of its weaker populations in the periphery of the small country.
Just this week, a ceramics factory in the south of the country announced it was shutting down and firing 130 workers due to its inability to compete with exported ceramics coming in at a much cheaper price. Situated in a struggling town of a bit over 9,000 residents, the expected shutdown of the plant is a severe blow.
"A stronger Shekel is not good news for traditional exports," Leiderman said in interview to Xinhua, " Israeli exporters will have to find ways of improving their productivity, become more efficient to save in other costs so they can overcome the difficulty of a stronger shekel."
Israel's foreign currency reserves have been steadily increasing since 2008 for several reasons.
The main one is Israel's flourishing hi-tech industry. One of the top exporters of technology in the world, the industry brings in lots of foreign cash to the country. In the past decade, several Israeli companies have been sold to big multi-national firms for billions of dollars.
However, there has been a minor slow-down in the hi-tech industry in 2016.
There has also been a policy in place for several years in which the central back purchases dollars and actively influences the market.
According to a BOI Monetary policy report from 2016, "the main goal...of policy...regarding foreign exchange market intervention is the moderation of the overvaluation deriving from current global economic conditions and the very accommodative monetary policy worldwide."
Indeed, Israel was barely scathed by the global financial crisis of 2008.
Last month, the BOI bought 200 million USD. According to a recent statement from the bank, part of all its foreign currency purchases are aimed at countering the effect of Israel's natural gas discovery has had on the foreign exchange market.
The first major gas depot was discovered in 2009. The discovery was a huge change for a country which relied solely on exported natural gas. This led to a reduction in the cost of living in Israel, the fruits of which residents are gradually beginning to feel. There is still a long road ahead.
Speaking last year in Israel, OECD (Organization for Economic Co-operation and Development) Secretary General Angel Gurria said that "Growth rates have exceeded those in most other OECD countries for more than a decade; employment is rising; inflation is low; and the public finances are in relatively good shape; but, there is homework to do if everyone in Israeli society is to benefit from this strong growth."
It is also critical to remember Israel's delicate geopolitical position. Surrounding by mainly hostile neighbors and with a never-ending low-intensity conflict with the Palestinians, the economy is vulnerable to negative developments.
"The result of the BOI policy has been an increase in foreign reserves...this makes the position of Israel stronger in case of some negative shock coming from the geopolitical factors or external factors," says Professor Leiderman.
While the statistics on Israel's economy paint an optimistic picture of a robust country, there are many issues to be addressed.
In an op-ed in financial paper The Marker entitled "The shekel is getting stronger but the industry is dying", Joseph Fraiman, chairman of Prico investment group wrote that "BOI's intervention in the foreign currency market...is just an aspirin for lack of productivity in the Israeli industry and workers."
Productivity was one of the main issues singled out by the OECD as a problem to be addressed.
According to the organizations statistics, labor productivity in Israel is relatively low compared to most OECD members. This has a direct impact on an economy's ability to grow.
"They are using old tools (the Bank of Israel)," Maoz said, "What is happening here does not appear in the text books, so they do not know what to do."
Leiderman is in favor of the policy.
"The policy has been making the market more stable and more reasonable," said Leiderman.
The policy is expected to continue to the dismay of some. In recent years, Israel is below its inflation rates target at 0.20%, while it aims to be between 1-3%. "The intervention supports the moderation of the inflation rate's deviation to the downside of the target range," says the BOI, "If not for intervention to support the shekel, the...deviation...would have been greater."
The bank claims it's policy is 'flexible.'
Reservations about the freedom of the Israeli market are dismissed by Prof. Leiderman.
"It is important to note that Israel has completed in a very successful way, a full liberalization of the foreign exchange market so that there are no controls on capital inflow and outflow," he said.
The effects of Israel's economic prosperity are gradually seeping through society, but not yet reaching the periphery in which a large part of the population lives off traditional low-tech industries.
"I expect the state to invest more money in infrastructure, more roads, more tunnels, more airports, more education, ambulatory services," says Shlomo Maoz.
In recent years, there has been a boom in large infrastructure projects but many of them focused in the center of the country.
With the cash reserves to do so, the capability to extend this exists.
Bank of Israel (BOI), the central Bank, announced at the beginning of the month that its foreign reserves have broken yet another record, 111,051 million U.S. dollars at the end of September.
"This is being done in order to reduce the volatility of the Shekel (new Israeli Shekel, ILS) vis-à-vis the U.S. dollar and other currencies," says Professor Leo Leiderman, from the Economic department at the Tel Aviv University. He was also the Senior Director of the BOI Research Department.
This is not expected to change, according to Shlomo Maoz, a prominent Israeli economist who has held leading positions in private firms and several public service positions.
"As the foreign reserves are greater, the stability is stronger. This will lead to an even higher credit score which will lead to even more foreign currency entering the country," Maoz told Xinhua.
The strong Israeli Shekel, versus the weak U.S. dollar, has a severe impact on Israel's traditional industries, at the expense of its weaker populations in the periphery of the small country.
Just this week, a ceramics factory in the south of the country announced it was shutting down and firing 130 workers due to its inability to compete with exported ceramics coming in at a much cheaper price. Situated in a struggling town of a bit over 9,000 residents, the expected shutdown of the plant is a severe blow.
"A stronger Shekel is not good news for traditional exports," Leiderman said in interview to Xinhua, " Israeli exporters will have to find ways of improving their productivity, become more efficient to save in other costs so they can overcome the difficulty of a stronger shekel."
Israel's foreign currency reserves have been steadily increasing since 2008 for several reasons.
The main one is Israel's flourishing hi-tech industry. One of the top exporters of technology in the world, the industry brings in lots of foreign cash to the country. In the past decade, several Israeli companies have been sold to big multi-national firms for billions of dollars.
However, there has been a minor slow-down in the hi-tech industry in 2016.
There has also been a policy in place for several years in which the central back purchases dollars and actively influences the market.
According to a BOI Monetary policy report from 2016, "the main goal...of policy...regarding foreign exchange market intervention is the moderation of the overvaluation deriving from current global economic conditions and the very accommodative monetary policy worldwide."
Indeed, Israel was barely scathed by the global financial crisis of 2008.
Last month, the BOI bought 200 million USD. According to a recent statement from the bank, part of all its foreign currency purchases are aimed at countering the effect of Israel's natural gas discovery has had on the foreign exchange market.
The first major gas depot was discovered in 2009. The discovery was a huge change for a country which relied solely on exported natural gas. This led to a reduction in the cost of living in Israel, the fruits of which residents are gradually beginning to feel. There is still a long road ahead.
Speaking last year in Israel, OECD (Organization for Economic Co-operation and Development) Secretary General Angel Gurria said that "Growth rates have exceeded those in most other OECD countries for more than a decade; employment is rising; inflation is low; and the public finances are in relatively good shape; but, there is homework to do if everyone in Israeli society is to benefit from this strong growth."
It is also critical to remember Israel's delicate geopolitical position. Surrounding by mainly hostile neighbors and with a never-ending low-intensity conflict with the Palestinians, the economy is vulnerable to negative developments.
"The result of the BOI policy has been an increase in foreign reserves...this makes the position of Israel stronger in case of some negative shock coming from the geopolitical factors or external factors," says Professor Leiderman.
While the statistics on Israel's economy paint an optimistic picture of a robust country, there are many issues to be addressed.
In an op-ed in financial paper The Marker entitled "The shekel is getting stronger but the industry is dying", Joseph Fraiman, chairman of Prico investment group wrote that "BOI's intervention in the foreign currency market...is just an aspirin for lack of productivity in the Israeli industry and workers."
Productivity was one of the main issues singled out by the OECD as a problem to be addressed.
According to the organizations statistics, labor productivity in Israel is relatively low compared to most OECD members. This has a direct impact on an economy's ability to grow.
"They are using old tools (the Bank of Israel)," Maoz said, "What is happening here does not appear in the text books, so they do not know what to do."
Leiderman is in favor of the policy.
"The policy has been making the market more stable and more reasonable," said Leiderman.
The policy is expected to continue to the dismay of some. In recent years, Israel is below its inflation rates target at 0.20%, while it aims to be between 1-3%. "The intervention supports the moderation of the inflation rate's deviation to the downside of the target range," says the BOI, "If not for intervention to support the shekel, the...deviation...would have been greater."
The bank claims it's policy is 'flexible.'
Reservations about the freedom of the Israeli market are dismissed by Prof. Leiderman.
"It is important to note that Israel has completed in a very successful way, a full liberalization of the foreign exchange market so that there are no controls on capital inflow and outflow," he said.
The effects of Israel's economic prosperity are gradually seeping through society, but not yet reaching the periphery in which a large part of the population lives off traditional low-tech industries.
"I expect the state to invest more money in infrastructure, more roads, more tunnels, more airports, more education, ambulatory services," says Shlomo Maoz.
In recent years, there has been a boom in large infrastructure projects but many of them focused in the center of the country.
With the cash reserves to do so, the capability to extend this exists.
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