Goldman Sachs said the Israeli Shekel now reflects a risk premium due to the new judicial reforms being pushed through the Knesset by the government of Prime Minister Benjamin Netanyahu. The firm previously reported concerns about the Shekel and Israel’s economy for the same reasons, as did other financial powerhouses like JPMorgan.
As of now, the Shekel has lost more than 8% of its value against the US Dollar since the plan was first proposed and Israel erupted with mass demonstrations against it.
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The government’s judicial reform plan would greatly curtail the power of Israel’s Supreme Court to nullify legislation passed by the Knesset and also limit the authority of Israel’s attorney general.
Israel’s opposition has said that the reforms, which would greatly curtail the authority of Israel’s Supreme Court and its Attorney General, would harm Israel’s democracy thereby eroding foreign confidence in the country and hurting its economy.
“The shekel’s performance in January was the worst of any currency against the dollar,” said a report by Goldman Sachs. “While significant political premium now looks to be embedded in the Israeli currency, risks remain for the shekel over the short run. The broader shekel trend this month clearly reflects not just global developments, but domestic ones.”
The Bank of Israel is expected to at some point step in and “save” the Shekel by buying up Shekels with hard foreign currencies it holds in reserve. On this possibility, the Goldman Sachs analysts wrote, “It remains unclear if or when FX interventions will be part of the discussion around the shekel. Tactical views on whether the currency will return to its ‘global tech anchor’ will require more clarity on expectations of domestic policy.”
Many Israeli firms have been taking their money out of the country, both out of fear of the Shekel’s stability and in protest.
Wiz, an Israeli cloud security startup and a unicorn, was reportedly taking its money out of Israeli banks. And just a week ago Israeli startup Papaya Global, a fintech unicorn that offers a cloud based platform for companies to handle their payrolls, was the first Israeli firm to decide to divest itself of Israeli banks due to the judicial reform plan proposed by Benjamin Netanyahu’s government.
