If the shekel has devalued against the euro, it holds its own against the dollar, displaying insolent stability.

Despite Israel’s war on several fronts, the shekel stands up to the greenback; a phenomenon which may surprise, especially since other currencies are strengthening against the Israeli currency.

Since October 7, 2023, the Israeli currency has experienced ups and downs, depending on the military, geopolitical and economic tensions which have characterized this year of war.

A long and costly conflict generates numerous economic uncertainties which result in a depreciation of the local currency: investors flee the country and abandon its currency which sees its value rapidly devaluate.

Insolent stability.

Israel is well aware of international pressure on its currency; but curiously, the shekel does not behave the same way against all foreign currencies. If the shekel has devalued against the euro, it holds its own against the dollar, displaying insolent stability.

In fact, it is not so much the shekel that appreciates against the dollar; rather, it is the dollar that is depreciating in relation to world currencies, including the shekel. If inflation in the United States has maintained high interest rates, a trend reversal is beginning: the rates of the American Federal Reserve (Fed) have started to fall, which will lead the greenback to depreciate in the months to come.

To avoid uncertainties regarding the American economy, investors prefer to sell dollars to take refuge in more stable currencies, such as the euro or the Swiss franc.

The shekel also benefits from this tendency to flee the dollar. Interest rates remain high in Israel and show no signs of falling, prompting speculators to change their dollars into shekels to invest on the Tel Aviv Stock Exchange or in profitable bank investments.

Result: at the end of 2024, there are a lot of dollars in circulation in Israel, which accelerates its depreciation against the shekel.

Safety cushion

Another sign of the influx of dollars into Israel: foreign exchange reserves are exploding. At the end of last October, the Bank of Israel held $216 billion in foreign currency reserves, an all-time record.

During the year of war, Israel’s foreign exchange reserves continued to grow: they amounted to 191 billion dollars in October 2023, or 25 billion more in twelve months.

The increase in Israel’s foreign currency reserves can be explained by several reasons:

• The first is the growing export of Israeli gas to Jordan and Egypt; more recently, Egyptian ships have begun delivering Israeli gas to Europe.
• The war also accelerated unilateral transfers of capital to Israel; American aid, donations from the diaspora as well as international solidarity towards the population impacted by the conflict, totaled several billion dollars which filled the coffers of the central bank.
• In addition, the recession that the Israeli economy has been going through since the start of the war has allowed the country to save dollars; in 2024, the drop in Israeli imports of goods (-6%) will save the country’s coffers $5 billion.

Foreign currency reserves represent a safety cushion for the Israeli economy; they give the government economic and financial room to maneuver to possibly cope with the increase in external debt.

about the author

Jacques Bendelac is an economist and social science researcher in Jerusalem, where he has been based since 1983. He has a doctorate in economics from the University of Paris. He taught economics at the Jerusalem Higher Institute of Technology from 1994 to 1998, at the Hebrew University of Jerusalem from 2002 to 2005 and at Netanya University College from 2012 to 2020. He is the author of numerous works and articles devoted to Israel and Israeli-Palestinian relations. He is notably the author of “The Arabs of Israel” (Autrement, 2008), “Israel-Palestine: tomorrow, two partner states? » (Armand Colin, 2012), “Israelis, hypercreative! » (with Mati Ben-Avraham, Ateliers Henry Dougier, 2015) and « Israel, instructions for use » (Editions Plein Jour, 2018). Latest work published: “The Netanyahu Years, Israel’s great shift” (L’Harmattan, 2022). He regularly comments on economic news in the Middle East in the French and Israeli media.