Bank of Israel Governor Prof. Stanley Fischer has racked up tens of millions of dollars in profits on paper since he ordered the Bank to begin buying dollars six months ago when it was worth only 3.30 shekels. As of Wednesday morning, the greenback was worth 3.83 shekels, the first time since January 3 the shekel-dollar rate was above 3.82.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Fischer, who previously had said that central bank intervention usually fails when used to try to stabilize local rates, surprised everybody last March and ordered massive purchases of dollars. The local rate had taken a deep dive to nearly 3.20 shekels to the dollar, a 12-year low.
The strong shekel severely hurt exporters, whose dollar profits declined sharply after conversion to shekels.
Fischer ordered that the Bank of Israel begin increasing its dollar reserves by approximately $7 billion from the $28 billion at the end of last year, a level much lower than in the prior three years.
Fischer ordered that the Bank of Israel begin increasing its dollar reserves by approximately $7 billion.
"The Bank will increase the reserves by about $10 billion over a two-year period by acquiring about $25 million per day," he stated in March. In July, when the shekel-dollar still was floundering around the NIS 3.25 level, the Bank increased purchases to $100 million a day.
Fischer observed at the time, "It is possible that within the coming weeks we will witness the continuation of the signs of change. There is a change of atmosphere, and what's important in a financial crisis is the atmosphere."
Investors who listened to some currency experts instead of following Fischer's actions have lost dearly if they held on to shekels. One Bank Leumi trader was quoted at the time as predicting that the rate would sink to three shekels to the dollar.
Instead, the dollar has appreciated by 15 percent in the past six months as investors have learned that a global recession may affect European countries while dire forecasts for the American economy already have been taken into account.
The Bank's initial purchase last March was $930 million. Assuming daily Bank of Israel dollar purchases of $25 million a day at an average rate of 3.50 shekels to the dollar, it has bought nearly $3 billion in dollars, resulting in profits on paper of approximately $300 million.