The G7 are finance ministers from seven well-heeled economies (not in all cases the largest) who meet several times a year to thrash out the hottest issues challenging the world’s leading marketplaces. At their recent gathering in Washington they homed in on travails all too familiar to us Israelis – foreign currency speculation.Though our small economy by no means qualifies for G7 membership, it appears that what plagues us isn’t diametrically different from what besets others. We all witness increasingly speculative foreign currency trading which imposes artificial values on targeted currencies, largely unrelated to actual performance and/or risks of the economies which field said currencies. In other words, currency values are separated from the economic realities they purportedly represent.The effect of such manipulation on international commerce, growth potential and the economic well-being of entire nations cannot be overstated. Many economies – Israel’s among them – labor under handicaps of distorted values.At some level the culprits may be private investors out to reap quick profits. Their sort most especially affects our shekel. But at a deeper level, speculators are motivated by the worst offenders among the central banks, who are the biggest value-skewers of all.Prime among them is China, which keeps its yuan chronically and grossly undervalued. It currently crawls up in value annually by a preposterous 4%. This means that when judged against China’s real growth it’s undervalued by dozens of percentagepoints. That is, for all intents and purposes, the original sin.The no-less aggressive American response is to keep the dollar abnormally low via rock-bottom interest rates. This generates chain reactions which hit nations only indirectly involved. The euro, sterling, Swiss franc and even our shekel inadvertently pay the price.What can be done to help the hapless victims? The G7 have now urged that all currencies be backed by higher reserves to limit volatility and discourage speculation. Put plainly, that would mean central bank intervention in currency markets. It would mean, for example, buying up vast amounts of currencies, like the US dollar, to relieve pressure from given currencies when these are attacked by speculators. A recent example was the aid accorded the Japanese yen after the multiple quake-tsunami-radioactivity disasters. The G7 sold billions of yen to drive its value lower. This was necessary to boost Japanese exports, after the speculators smelled an opportunity and began stocking up on yen. The speculators thereby drove the Japanese currency dangerously upwards, a trend that could have become lethally detrimental to any future recovery.Indeed at the latest G7 session a very grateful Japanese Finance Minister Yoshihiko Noda requested that a watchful eye be kept over the currency markets in future as well, along with recurring joint intervention, if it is deemed necessary.Interestingly enough, the remedies prescribed by the G7, and applauded particularly by Japan, are the very ones adopted independently by Bank of Israel. The shekel is one of the currencies which speculators now regard as lucrative, not so much due to any intrinsic strength of our economy, but to the fact that our interest rates are higher than elsewhere for fear of inflation. Hence it pays to dump other currencies here, buy shekels and thus generate higher income than possible from other currencies.The upshot is that the more the shekel is sought after, the more its value artificially appreciates. In practical terms it means that exporters who get paid in dollars or euros earn less in shekel terms. This can cut painfully into their profits. Eventually this can lead to stagnation in production, layoffs and even plant closures and loss of markets.Just as Japanese exporters need help, so do their Israeli counterparts. The difference is that we cannot rely on international rescue and additionally must raise interest rates to avoid the specter of inflation.Nonetheless, the high dollar reserves for which Bank of Israel Governor Stanley Fischer had been criticized are just what the G7 recommends. Given our geopolitical vulnerabilities, these can constitute supplementary insurance policies in the event that self-serving fair-weather speculators suddenly ditch us for whatever reasons, war among them.