Regional Trading Agreements
Historial Exchange Rate Regime of Asian Countries
 
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  Untitled Document
Israel
  Foreign exchange control was administered by the Department of Foreign Exchange Control of the Ministry of Finance, under the responsibility of the Controller of Foreign Exchange and in cooperation with other government agencies and was carried out through authorized bank.

In 1970s, the currency of Israel was Israel Pound (I£). Following the fluctuation of U.S. Dollar, Israel Pound depreciated and the gold content reduced continuously. In the late 1970s and early 1980s, Israel experienced a triple-digit inflation rate. In order to meet the inflation target, Israel sustained a fixed but adjustable nominal exchange rate. In 1976, the value of the Israel Pound stopped to be pegged to the U.S. Dollar. A controlled, floating Effective Rate for the Pound was established, as the unit was linked to a basket of five currencies. The currency basket was an artificial currency containing the currencies of Israel's biggest trading partners in different proportions.

In 1980, a new currency, Israel Shekel (IS) was created, based on exchange of I£10.00 = IS1.00. In 1985, New Sheqel (NIS) replaced the Israel Shekel. But the old and new currencies could be the legal tender concurrently for the first year. In 1986, the Sheqel's link to the U.S. Dollar was broken; the Effective Rate was attached to a revised basket of currencies. They include the U.S., Germany, the UK, France and Japan. While in 1998, the exchange rate of New Sheqel was managed with regard to a basket of currencies comprising the Euro, the Yen, the Pound Sterling and the U.S. Dollar.

Israel's crawling exchange rate was introduced in 1989; it was based on a fluctuation zone (within a margin of 3%) around a fixed central parity rate. The exchange rate band was widened response to market forces and intervention policy. In 1990, the band was widened from 3% to 5% while in late May 1995, the Bank of Israel and the Minister of finance announced the widening of the exchange rate band to 7% around the central parity rate. The purpose was to allow greater exchange rate flexibility. Another change in the band's parameters occurred in June 1997, additional room for exchange rate flexibility was introduced in the form of enlarging the band's width from 7% to 15%.

Up till now, Israel still maintained a crawling exchange band, where the upper limit depreciates at a rate of 6% per year, the lower limit depreciates at a rate of 2% per year, and the width of band at the end of 1999 was about 44.5%. In January 2000, the band's width was 36% and it was gradually increasing so that practically it was closer to a regime of a "Free Float". (Bufman, p.1-9)

Major sources of reference include:
1) World Currency Yearbook (WCY)
2) IMF Annual Report on Exchange Arrangement and Exchange Restriction (IMF)
3) Bufman G. and L. Leiderman. 2001. Surprises on Israel's Road to Exchange Rate Flexibility (Bufman)
   
 
Date
Changes to the exchange rate regime
New Sheqel per U.S. Dollar
19 November 1967The Israel Pound (I£) was devalued from a fixed Official Rate of I£3.00 to I£3.50 per U.S. Dollar in the wake of Sterling's devaluation. (WCY 1984, p.388)  
17 August 1970The Pound was partially devalued; as Import and Export Rates were created resulting from import surcharges and export subsidies. (WCY 1984, p.388)  
15 August 1971With the floating of the U.S. Dollar, the Israel Pound was devalued 16.7% in terms of gold, changing the Official Rate from I£3.50 to I£4.20 per U.S. Dollar. This new exchange rate relationship to the American unit remained unchanged throughout the period of the U.S. Dollar's floating, thereby also effecting a devaluation of the Israel Pound. (WCY 1984, p.388)  
20 December 1971Following the American Dollar's devaluation in December, the Pound was once more reduced 7.89% in terms of gold, paralleling the U.S. Dollar's devaluation and thus leaving unchanged the Official Rate of I£4.20 per U.S. Dollar. (WCY 1984, p.388)  
14 February 1973Israel declared that no change was being made in Israel Pound's Official Rate of I£4.20 per U.S. Dollar. Following U.S. Dollar's devaluation, the Israel Pound reduced 10 % in terms of gold. (WCY 1984, p.388)  
10 November 1974The Israel Pound was devalued 30% in terms of gold to a new Official Rate of I£6.00 per U.S. Dollar. (WCY 1984, p.388)  
17 June 1975Israel inaugurated the systematic minidevaluations of the Pound. The Official Rate was cut from I£6.00 per U.S. Dollar to I£6.12 per U.S. Dollar. Thereafter, the Pound was periodically devalued with the unit's multiple exchange rates adjusted accordingly. (WCY 1984, p.388)  
5 August 1975The Official Rate was devalued to I£6.24 per U.S. Dollar. (WCY 1984, p.395)  
8 September 1975The Official Rate was devalued to I£6.36 per U.S. Dollar. (WCY 1984, p.395)  
28 September 1975The Official Rate was devalued to I£7.00 per U.S. Dollar. (WCY 1984, p.395)  
23 November 1975The Official Rate was devalued to I£7.10 per U.S. Dollar. (WCY 1984, p.395)  
5 January 1976The Official Rate was devalued to I£7.24 per U.S. Dollar. (WCY 1984, p.395)  
10 February 1976The Official Rate was devalued to I£7.38 per U.S. Dollar. (WCY 1984, p.395)  
15 February 1976More partial devaluations occurred when a Resident Travel Rate was created, based on a 15% tax on purchases of foreign exchange by residents going abroad. A Service Rate was also established, resulting from a 15% levy on specific invisibles. (WCY 1984, p.388)  
15 March 1976The Official Rate was devalued to I£7.52 per U.S. Dollar. (WCY 1984, p.395)  
18 April 1976The Official Rate was devalued to I£7.67 per U.S. Dollar. (WCY 1984, p.395)  
20 May 1976The Official Rate was devalued to I£7.82 per U.S. Dollar. (WCY 1984, p.395)  
24 June 1976The Official Rate was devalued to I£7.97 per U.S. Dollar. (WCY 1984, p.395)  
1 July 1976An 8% value-added tax on goods and services was introduced. (IMF 1977, p.252)  
19 July 1976The value of the Israel Pound ceased to be pegged to the U.S. Dollar. A controlled, floating Effective Rate for the Pound was established, as the unit was linked to a basket of five currencies composed of US$0.35 (35%), £0.1285 (23%), DM0.515 (20%), F0.6832 (14%) and f 0.2187 (8%). (WCY 1984, p.388)

The Official Rate was devalued to I£8.12 per U.S. Dollar. (WCY 1984, p.395) 

 
25 August 1976The Official Rate was devalued to I£8.25 per U.S. Dollar. (WCY 1984, p.395)  
29 September 1976The Official Rate was devalued to I£8.40 per U.S. Dollar. (WCY 1984, p.395)  
31 October 1976The Official Rate was devalued to I£8.61 per U.S. Dollar. (WCY 1984, p.395)  
27 December 1976The Official Rate was devalued to I£8.90 per U.S. Dollar. (WCY 1984, p.395)  
2 March 1977The Official Rate was devalued to I£9.13 per U.S. Dollar. (WCY 1984, p.395)  
21 March 1977The Official Rate was devalued to I£9.31 per U.S. Dollar. (WCY 1984, p.395)  
25 May 1977The Official Rate was devalued to I£9.44 per U.S. Dollar. (WCY 1984, p.395)  
August 1977The Official Rate was devalued to I£10.27 per U.S. Dollar. (WCY 1984, p.395)  
18 October 1977The Official Rate was devalued to I£10.45 per U.S. Dollar. (WCY 1984, p.395)  
28 October 1977A comprehensive reform of the exchange system was effected. The rate of the Israel Pound ceased to be determined with respect to a composite of currencies, and Israel introduced a floating exchange rate regime. The controlled, floating Effective Rate was made applicable to all transactions.

Most foreign exchange restrictions were removed, as were all multiple exchange rates. The temporary surcharges of 15% on imports and some invisible payments were abolished. (IMF 1978, p.224)

The Official Rate became inoperative. Import Rate, Export Rate and Resident Travel Rate were abolished. (WCY 1984, p.395)

The authorized banks were permitted to deal in foreign exchange with residents and with their correspondents in foreign markets. (IMF 1978, p.222)  

 
22 February 1980A new currency, Israel Shekel (IS) was created, based on exchange of I£10.00 = IS1.00. The changeover was made gradually over the period ending October 1. (IMF 1981, p.227)  
6 April 1983The public imposed a levy of 1% of transaction on the purchases of foreign exchange. (IMF 1984, p.276)  
10 August 1983The unit was again linked to a basket of currencies and periodic adjustment followed. (WCY 1984, p.388)

The new unit (Israel Shekel) was cut 7% against the U.S. Dollar to IS57.13 per U.S. Dollar. (WCY 1985, p.429) 

 
11 October 1983The Shekel was devalued 19% versus the American unit to IS80.70 per U.S. Dollar. (WCY 1985, p.429)   
17 January 1984Strict foreign exchange controls were instituted, returning the free market to a black market category. (WCY 1985, p.429)  
24 July 1984Foreign exchange transactions were suspended for the day to permit the orderly introduction of changes to exchange control regulations. (IMF 1985, p.283)  
27 July 1984The 15% value-added tax (VAT) was made applicable to purchase of foreign exchange for foreign travel and services (1% levy plus 15% tax), resulting in the reestablishment of the Resident Travel/Service Rate. (WCY 1985, p.429)  
17 September 1984The Shekel was depreciated against the U.S. Dollar by 8%; the depreciation was additional to the routine changes in the exchange rate to reflect inflation differentials. (WCY 1985, p.429)  
1 July 1985Israel's unit was cut 15.84% to IS1,500 per U.S. Dollar and frozen for three months. (WCY 1985, p.429)   
4 September 19851,000 old Sheqalim were declared equal to 1.00 New Sheqel (NIS), plural Sheqalim, or NIS1.50 per U.S. Dollar. The old and new currencies would be legal tender concurrently for the first year, and for a further year it would be possible to convert the old Sheqel freely into the New Sheqel. (IMF 1986, p.307)   
31 December 1985 1.500 
1 August 1986The Sheqel's theoretical link to the U.S. Dollar was broken and the Effective Rate was attached to a basket of currencies consisting the U.S. Dollar (60%), the Deutsche Mark (20%), the U.K. Pound Sterling (10%), the French franc (5%) and the Japanese Yen (5%). (WCY 1986/87, p.741)   
31 December 1986 1.486 
13 January 1987The Sheqel was devalued 9.15% to NIS1.64 per U.S. Dollar. (WCY 1986/87, p.741)   
31 December 1987 1.539 
27 December 1988Israel's unit was cut 4.8% against the U.S. Dollar to a representative rate of NIS1.68. Against the currency basket, the new rate was NIS1.8038. (WCY 1988/89, p.734)   
31 December 1988 1.685 
3 January 1989The New Sheqel was devalued 7.4% against the currency basket and 7.2% versus the American unit to NIS1.8067 per U.S. Dollar.

A 3% trading band was also established. (WCY 1988/89, p.734)

The actual daily rates were established by the Bank of Israel within margins of 3% around the new basic rate fixed in relation to the basket. (IMF 1990, p.247) 

 
19 April 1989The value-added tax on purchases of foreign exchange for tourism was cut from 15% to 7.5% and the 1% levy was abolished. (WCY 1990/93, p.806)   
23 June 1989A further 4.4% reduction against the currency basket was effected. (WCY 1988/89, p.734)   
1 September 1989The 7.5% tax on services was abolished, but not for travel. (WCY 1990/93, p.806)   
29 December 1989 1.963 
1 March 1990The trading band was widened to 5%. (WCY 1990/93, p.806)   
3 March 1990The New Sheqel was devalued 6% to NIS2.188 per U.S. Dollar. (WCY 1990/93, p.806)   
5 March 1990The New Sheqel was cut 1.6% to NIS2.1779 per currency basket and to NIS2.0431 per U.S. Dollar. (WCY 1990/93, p.806)   
25 June 1990The New Sheqel was reduced 1.38%. (WCY 1990/93, p.806)   
9 September 1990The New Sheqel was devalued by a 9.1%, to NIS2.4077 per currency basket and to NIS2.08 per U.S. Dollar. (WCY 1990/93, p.806)   
31 December 1990 2.048 
11 March 1991The New Sheqel was cut 6.25% to NIS2.192 per U.S. Dollar. (WCY 1990/93, p.806)   
17 December 1991Both the midpoint rate and the bank (fluctuation margin) have been adjusted gradually at a daily rate that reflects the annual difference between the domestic inflation target and the projected inflation in Israel's main trading partners, so as to give an annual deflation rate. During 1991, the rate was 9% and the Resident Travel Rate tax was lowered to 4%. (WCY 1990/93, p.806)

Since then, the midpoint rate itself has been adjusted daily in relation to the basket; a daily adjustment rate of 0.0236% was set so as to give an annual devaluation rate of 9%. (IMF 1992, p.250) 

 
31 December 1991 2.283 
9 November 1992The midpoint rate was devalued by 3% against the currency basket; since then the adjustment rate has been set at 0.0211% so as to give an annual devaluation rate of 8%. (IMF 1993, p.256)  
31 December 1992 2.764 
1 January 1993The 4% tax on sales of foreign exchange to residents for purposes of tourism and for transfers abroad (Resident Travel Rate) was abolished. (WCY 1990/93, p.806 & IMF 1994, p.251)   
1 April 1993The maximum compensation provided under the Export Insurance Facility for exchange rate risks was reduced to 2% of the value added. (IMF 1994, p.251)   
26 July 1993The adjustment of the upper (depreciated) band has been cut to 6% on an annual basis. (IMF 1998, p.454)  
1 September 1993The Export Insurance Facility for exchange rate risks was abolished. (IMF 1994, p.251)   
31 December 1993 2.986 
31 December 1994 3.018 
1 June 1995The exchange rate band was widened from 5% to 7% around the midpoint rate in response to market forces and intervention policy. (IMF 1996, p.243)   
31 December 1995 3.315 
5 June 1996The composition of the currency basket was adjusted on the basis of the difference between the composition of trade and the composition of the basket in 1994. It was also announced that each year, the final trade figures for the preceding year would be reviewed. If the review indicates that a change of 2 percentage points or more is required in the weight of any of the currencies comprising the basket, all the components of the basket will automatically be adjusted on April 30 of that year. (IMF 1996, p.245)  
1 August 1996Authorized dealer banks were permitted to undertake swap transactions of domestic currencies for foreign currencies with the Bank of Israel. (IMF 1996, p.245)  
17 June 1997Since then, the market exchange rate band was widened from 7% to 15% around the midpoint rate in response to market forces and intervention policy.

The adjustment of the lower (appreciated) band has been 4% on an annual basis. (IMF 1998, p.454) 

 
1998The exchange rate of the New Sheqel was managed with regard to a basket of currencies comprising the Euro, the Yen, the Pound Sterling and the U.S. Dollar. (IMF 1999, p.437)  
1 January 1998All restrictions were removed on forward transactions between foreign currencies, cross rates, interest rates on foreign-currency assets or liabilities, and commodity and securities prices. (IMF 1999, p.437)  
6 August 1998The rate of crawl of the appreciation limit of the band was reduced to 2% a year from 4% a year. The rate of crawl of the depreciated limit of the band remained unchanged at 6%. (IMF 1999, p.437)  
31 December 1999The width of the band was 44.5% (upper limit over the lower limit) and the margin from a virtual midpoint was plus and minus 18.23%. (IMF 2000, p.449)  
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