At a conference of the Aaron Institute for Economic Policy at the Herzliya Interdisciplinary Center, Avi Tiomkin, a consultant to international hedge funds, accused the Bank of Israel of losing $15 billion by not investing Israel's foreign currency reserves in US government bonds.
Tiomkin told the conference, "In every investment company, every hedge fund, and the entire industry to which many of us belong, it appears to me that those responsible for actual management would not retain their jobs, and I'm sorry to be saying this in such a harsh manner in the presence of the Governor of the Bank of Israel.
"I'm not talking about sophisticated management. Since the reserves began to grow, the difference between keeping all of the reserves in US government bonds, the safest and most liquid investment, would have generated over $15 billion in additional income. In my estimation, the Bank of Israel's obsession with keeping the reserves because of concern about an interest rate hike, due to its fear of inflation and an increase in budget deficits, has cost Israel at least $15 billion, which is equal to the defense budget for an entire year."
Bank of Israel marketing department head Andrew Abir said in response, "You are not the first person who wants to fire me. You have to understand what we have done in managing the reserves. The expected return on the reserves in the medium term is higher than the short-term return on short-term loans. We did this responsibly, and we will continue doing so."
The Bank of Israel again intervened in the foreign currency market yesterday, and it appears that its ineffective policy in manipulating the shekel exchange rates is beginning to arouse much opposition, with the most critical opponents being Tiomkin and Prof. Omer Moav.
The Bank of Israel said in response, "The Bank of Israel has won international acclaim for its management of the foreign currency reserves, and this year won 'Central Banking Magazine's' international prize for it. The reserves are managed in accordance with the risk concept formulated by the Monetary Committee, which is how Israel's reserves portfolio should be managed - high liquidity in an emergency, for example. It is known that the Bank of Israel has also begun investing the reserves in shares and corporate bonds in recent years, and the risk profile has been increased on the basis of a professional and responsible analysis of the features of the portfolio and the developments in the global economy - a process that 'Central Banking' said was pioneering."
Published by Globes [online], Israel Business News - www.globes-online.com - on May 4, 2017
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