BoI: Israelis held on to cash during crisis

During global economic crisis public didn't put cash into bank deposits in light of low interest rate environment, according to Bank of Israel report.

the bank of israel (photo credit: Ariel Jerozolimski)
the bank of israel
(photo credit: Ariel Jerozolimski)
During the global economic crisis, the public preferred to hold on to cash rather than put it into bank deposits, in light of the low interest rate environment, according to the Bank of Israel’s annual currency report published on Monday.
“Cash in circulation grew even faster during the crisis that started towards the end of 2008, a trend observed also in many other countries,” said Mordechai Fein, head of the currency department at the Bank of Israel.
“The public preferred to hold a larger amount of cash than in more normal times, rather than in interest-bearing deposits. They did this both as a safety precaution, and also, to a great extent, because of the very low level of interest. In other countries the public was also concerned about the possibility of bank failures.”
The amount of currency in circulation reached about NIS 41.5 billion at the end of 2009, compared with about NIS 34.4b. at the end of 2008, representing an increase of 21 percent. The Bank of Israel also attributed the increase in cash to population growth and the greater incidence of cash transactions.
The share of the NIS 200 banknote in the country’s circulating cash rose by 33% in 2009 compared with the previous year, due to its wider distribution in cash dispensers.
This increase accounted for 57% of the rise in the value of banknotes in circulation in 2009.
Last year, the Bank of Israel boosted the number of possibilities for withdrawing cash.
The number of automated teller machines (ATMs) rose by 2%, and other alternative possibilities were introduced, such as cash withdrawals at chain stores and gas stations.
In 2009 banknotes constituted 97% of the total value of money in circulation, and coins, 3%. More than half of the coins in circulation, or 52%, were 10-agorot coins, used mainly for change on public transport within towns. The NIS 1 coin, much used in parking meters and vending machines, accounted for 21% of the number of coins in circulation. The number of NIS 2 coins, issued starting December 2007, increased by 54% in 2009, and constituted 2% of the number of coins in circulation.
“The rate of counterfeits of banknotes and coins is low relative to those in the eurozone and the US,” stated the report. “Most counterfeits are of the NIS 100 note and the NIS 10 coin. The rate of counterfeits in the latter increased in 2009.”
The central bank added that in its struggle against currency counterfeits, the currency department acted in a special forum consisting of representatives of the police, the banks, and the Bank of Israel in an effort to formulate means for preventing and identifying counterfeits and for dealing with them.
The Bank of Israel noted that many attempts have been made recently to use photocopies and replicas of banknotes in advertisements.
“We would like to bring to the attention of the public and to advertisers that there are limitations and prohibitions relating to photocopying banknotes and publishing such photocopies or photographs, to avoid suspicion of counterfeits,” stated the report.
Furthermore, the Bank of Israel said that its currency department provides a money-changing service for changing Israeli currency into larger or smaller denominations at the cash desk in the Bank of Israel in Jerusalem. In addition, the public can change spoiled currency at the cash desk, without charge. Banknotes of the old series of the New Israeli Shekel which were withdrawn from circulation in 1999, and 5-agorot coins, which were withdrawn from circulation in 2008, can also be exchanged at the cash desk, without charge. Alternatively, the central bank said that these old banknotes and coins can be exchanged by sending them to the Bank of Israel via registered mail, and the sender’s bank account will be credited with the appropriate amount.
The old banknotes and the 5-agorot coins can also be exchanged at branches of the commercial banks. However, the Bank of Israel reminded the public that the final date for exchanging the old currency into legal tender of the same value is December 31, 2010.