Governor of the Bank of Israel Prof. Stanley Fischer today received an award of excellence from the magazine "Euromoney." The award ceremony came during the semi-annual IMF conference in Washington DC.
At the same time Prof. Jacob Frenkel, who served as Governor of the Bank of Israel from 1991-2000, presented the G-30 with his proposed regulatory reforms. Frenkel who is chairman of the G-30, a global forum of senior economists, is also chairman of JPMorgan Chase International. Fischer is also a member of the G-30
In an interview with "Globes," Frenkel praised Fischer and said, "he is doing wonderful work," and tried not to criticize him but clearly had reservations about his ongoing policy of purchasing dollars. Frenkel thinks that Fischer's policy is leading to a dead end and cannot carry on long term. He warned, in his polite way, about the danger of inflation returning.
Frenkel said, "The question is if it is possible to permanently support the exchange rate against basic market forces. The answer is no and therefore the policy that Fischer is undertaking is not sustainable because it is always too small in relation to the market. But I am certain that Fischer is aware that his policy is not sustainable."
Frenkel warned, "At the moment the situation is not stable and the results of systematic intervention in the exchange rate are still not substantial on the surface because there are timers working at different rates such as the amount of money. We haven't yet reached the dead end and at the moment there are no inflationary pressures but there is a potential problem of inflation especially in countries (E.P. like Israel) which have inflation in their historical DNA."
Frenkel continued, "Intervention in the exchange rate was very correct." But now he thinks that purchasing dollars will lead to a dead end and in his opinion, Fischer is trying to buy time.
He said, "The Bank of Israel's policy in the foreign exchange market is not a strategic step but a tactical step that is suitable for certain circumstances and those who did it would be happy if there was no need to intervene."
Frenkel added, "Bank of Israel has become the address for intervention and Fischer has to clarify that central bank intervention in the foreign exchange market is not to take responsibility for the profitability of the private sector. The trading pattern of Israel needs to reflect the fact that the world is changing. Fischer is giving the business sector time out to do what it needs to do to be more efficient and move to export markets."
Published by Globes, Israel business news - www.globes-online.com - on October 10, 2010
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