BoI official: We won’t let oligarchs get rich on the shekel

Central bank amendment raises the reserve requirement for foreign exchange trading by nonresidents.

By ADI BEN-ISRAEL/GLOBES
January 20, 2011 22:29
1 minute read.
New Israeli Shekels

Money Shekels bills 58. (photo credit: Courtesy)

The Bank of Israel on Thursday published an amendment to the Liquidity Directives, requiring banks in Israel to meet a reserve requirement for foreign exchange derivative transactions by nonresidents.

The new order comes a day after it published an order requiring full details of foreign currency swap and forward transactions of more than $10 million in a day.

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The amendment will come into effect on January 27. The amendment will impose a 10 percent reserve requirement on shekel/foreign exchange swap transactions and forward transactions.

In other words, banks will have to set aside a larger amount of capital against credit they offer nonresidents for foreign exchange transactions, which will raise the cost of these deals to nonresidents, in an effort to drive them from the market.

A senior Bank of Israel official said, “It is brutal intervention. We won’t let the oligarchs buys shekels on Sunday and sell them on Thursday to make a fast buck on the shekel.”

“This is the start of taxation on the foreign currency market. Some foreigners began buying dollars yesterday, but they didn’t really understand what the Bank of Israel wants.

Today, they are making more massive purchases, ” a foreign currency market trader told Globes.

In the press release, the Bank of Israel, led by Governor of the Bank of Israel Prof. Stanley Fischer, said, “In the last few months, the volume of foreign exchange derivative transactions by nonresidents has increased markedly. A significant part of the increase in nonresidents’ transactions is in short term instruments.

This measure will strengthen the Bank of Israel’s ability to achieve the objectives of its monetary, foreign exchange and financial stability policies.”

The market response to the press release was swift. The representative shekel-dollar exchange rate rose 1.55 percent to NIS 3.599/$, and the shekel-euro exchange rate rose 1.83% to NIS 4.8587/euro. In international markets, the dollar continues to weaken against the euro and the pound, suggesting that the weakening of the shekel was directly due to the new Bank of Israel announcement.


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