Shekel at strongest against dollar in 23 years

A strong currency is generally seen as a blessing for those holding the currency, but a curse for people who receive payments in dollars.

By ZEV STUB
Stacks of Israeli shekel notes [Illustrative] (photo credit: NIR ELIAS / REUTERS)
Stacks of Israeli shekel notes [Illustrative]
(photo credit: NIR ELIAS / REUTERS)
The shekel is at its strongest in 23 years and was last trading at 3.22 to the US dollar, which has weakened against most global currencies over the past few weeks.
The shekel has gained strength thanks to a rising surplus in Israel’s balance of payments as more money flows into Israel than out, said Victor Behar, director of Bank Hapoalim’s economic department.
“This is about economic fundamentals,” he said. “Israel has a huge payments surplus of $20 billion due to a few main factors. Firstly, Israel’s skies are closed, so money isn’t leaving the country that way. Second, stocks have been going up around the world, and when Israelis accumulate a lot of money, they don’t like to keep too much of it exposed to the dollar, so they convert it into shekels. Those factors together have been the main drivers boosting the shekel.”
The last time the shekel was at 3.22 to the dollar was in November 1996.
Momentum has been increasing toward the shekel in recent weeks, Behar said, adding that he believes the trend will continue boosting it through the summer, when the world will hopefully reopen for travel.
The dollar has been weakening against most global currencies in recent weeks as optimism about the coronavirus vaccines and economic recovery leads investors to explore other markets.
Recent developments in the European Union that have reinforced investor faith in the euro are also contributing to the dollar’s decline.
A strong currency is generally seen as a blessing for those holding it but a curse for people who receive payment in dollars. The current situation is badly hurting Israel’s exporters.
About 70% of Israeli exporters deal primarily in dollars, said Natanel Haiman, head of the Manufacturers Association’s economics division.
“The shekel growing stronger by several percentage points has translated into billions of shekels of lost revenue this year,” he said.
Of the approximately 2,000 companies represented by the Manufacturers Association, 36% reported a decrease in revenues as a direct result of the shekel’s strength, not related to coronavirus, Haiman said. In addition, 39% said they had frozen hiring due to the situation, and 36% said they would have to lay off workers because of it.
“We are speaking with the Bank of Israel and the Finance Ministry, encouraging them to continue lowering interest rates and buying dollars,” Haiman said.
Israel’s benchmark interest rate is at a historic low of at 0.1%. The Bank of Israel has bought $17b. worth of dollars in the past year, according to Bank Hapoalim, including hundreds of millions of dollars spent in the past few weeks as part of an effort to mitigate the shekel’s rise.
Haiman expressed satisfaction that the central bank was using all the tools at its disposal to try to rein in the shekel.
However, the government was unable to make decisions that would help exporters due to political deadlock, he said.
“I’m not sure they really understand the full ramifications the shekel is having on the economy,” Haiman said.


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