Israel's currency reserves fall

The value of the reserves fell in December even though the Bank of Israel bought $132 million.

10 January 10 12:19, Adi Ben-Israel

Israel’s foreign exchange reserves totaled $60.62 billion at the end of 2009, $927 million less than at the end of November, the Bank of Israel reported today. This was the first monthly decline since February 2009.

Israel’s foreign exchange reserves fell even though the Bank of Israel bought $132 million on the market, as part of its efforts to keep the shekel exchange rate stable. The Bank of Israel's dollar purchases have boosted its foreign currency reserves by over $30 billion since March 2009.

The Bank of Israel attributed the drop in the foreign currency reserves to a $1.03 billion downward revaluation of the reserves, and to government transfers abroad of $38 million, which were partly offset by the dollar purchases. The revaluation was apparently due to the dollar's appreciation against leading currencies, such as the euro and pound sterling, which the Bank of Israel also holds in its foreign currency reserves.

The Bank of Israel does not disclose the mix of its foreign currency reserves, so it is not possible to know how much it holds in currencies other than the US dollar.

Excellence Nessuah chief economist Shlomo Maoz told "Globes", "I estimate that the Bank of Israel holds 64% of its foreign currency reserves in dollars, 23% in euros, 6.5% in pounds, and 6.5% in yen."

Maoz sharply criticized the Bank of Israel for its management of its foreign currency reserves. He said that the central bank was too conservative in its foreign currency investments, and that it could slightly increase the risk in its investments and achieve higher returns and profits, which could be used to invest in infrastructures, education, and so on.

"The Bank of Israel invests in banks and government bonds. But there's another way, taken by Norway, Singapore, and other countries, which is to diversify investments and also invest in infrastructure companies. This would achieve a much higher return, up to an average of 12% a year over several years, rather than the pennies that Bank of Israel currently makes," said Maoz.

Published by Globes [online], Israel business news - www.globes-online.com - on January 10, 2010

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