The U.S. Dollar, also known recently as “Obama Bucks” slipped below the NS 4 benchmark rate Friday for the first time in five months. The greenback’s international weakness, aggravated by the ongoing world recession and the immanent possible bankruptcy of giant U.S. automaker General Motors has resulted in the US currency falling against other major currencies, especially the Euro and Japanese Yen. The Shekel has continued to strengthen following the announcement by Bank of Israel Governor Stanley Fischer that the BoI will discontinue purchasing dollars as it has recently to help maintain it’s exchange rate and assist Israeli exports with a lower Shekel rate.
Fischer had tried to prop up the sagging greenback due to fears that Israeli exports would suffer, especially those destined for American markets. Another reason for the BoI purchasing dollars was due to an already large foreign currency reserve by the bank in that currency which would mean a loss of profits if the currency went down to the rate it was at it’s low point of NS 3.30 about a year ago. All this news is a bit discouraging for many people who are receiving pensions and other incomes in US dollars and have to exchange them for Shekels. Apartment sales to Americans also suffer when the dollar rate falls as prices for properties in Israel become more expensive.
For people who remember the early to mid 1980’s, when inflation in Israel reached nearly 400% and the former “old Shekel” was depreciating daily against the dollar and other currencies, this business seems almost comical – unless one is living on dollar based investments and pensions that is. A Citibank economist was recently quoted a saying “we think the Israeli central bank could soon find itself in a position where it is neither necessary nor desirable to continue it’s policy of purchasing foreign exchange (dollars) at the rate of $100 million a day”. That’s obviously what has happened in that the BoI is simply flooded with dollars.
In the long run, however, it’s obvious that the economy of Israel is tied considerably to what is happening in America; and too strong a Shekel rate is counter productive
for Israel’s exporters, especially in the current recessionary economy.