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Israel Increases Foreign Currency Reserves

Bank of Israel

Bank of Israel Building Jerusalem (Wikipedia)

The Bank of Israel (BoI) has reported that Israel’s foreign exchange reserves at the end of November 2022 stood at $194,414 million – or $194.414 billion). This constitutes an increase of $5,572 million ($5.572 billion) from their level at the end of the previous month. The level of the reserves relative to GDP was 37.5 percent.

The BoI said that the increase was the result of a revaluation that increased the reserves by approximately $6,754 million ($6.754 billion).

It is important for a small country like Israel to maintain strong hard foreign currency reserves in the form of US dollars, British Pounds and Euros, etc. Since a nation like Israel cannot borrow money in its own currency because it is not convertible internationally it needs to “hoard” foreign hard currencies like the Dollar.

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Other nations will not accept the New Israel Shekel in payment for debts. But the US Dollar is the world’s reserve currency and is accepted by everyone. The British Pound, the Euro, The Canadian Dollar and the Japanese Yen are also currencies accepted the world over.

Israel tends to have a trade deficit, so it needs foreign currencies to cover its balance of payments.

The Bank of Israel will also buy up a lot of foreign currencies when trying to lower the value of the Shekel. If the Shekel gets to be too strong against the US Dollar and the Euro as has been the case in recent years, the Bank will sell Shekels for hard currencies. By putting more Shekels out on the open market the laws of supply and demand will kick in and the Shekel will devaluate.

This is desirable because when the Shekel is too high Israeli exports become less attractive to foreign importers and foreign investments in Israel go down because the money does not go as far.

The opposite is also true. The BoI will buy up foreign currencies for Shekels – hoarding Shekels – to prop up the currency if it drops too low against foreign currencies. if it t

The BoI also explained that, in contrast, the increase was partially offset by:

a. Government transfers to abroad totaling approximately $1,134 million ($1.134 billion).

b. Private sector transfers totaling approximately $48 million.



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