Daily Israel Report

Israel’s Dollar Reserves a Weapon Against Iranian War Disaster

Gloom and doomers warn that war with Iran could cripple the economy, but Israel has a weapon: $70 billion in dollar reserves.
By Tzvi Ben Gedalyahu
First Publish: 8/13/2012, 4:42 PM

US dollars
US dollars
Israel news photo: Flash 90

Gloom and doomers warn that war with Iran could cripple the economy, but Israel has a weapon: $70 billion in dollar reserves.

Many international financial wizards scoffed at Bank of Israel Governor Stanley Fischer three years when he bought billions of dollars, ostensibly to keep the then-mighty shekel from growing even stronger. Israeli exporters were suffering from low revenue due to a lower shekel rate for the dollar and the euro.

Globes reported that a senior Bank of Israel official said, “We have $76 billion in foreign currency reserves, which says it all. It does not conceal the fact that some of the reasons for its accumulation of foreign currencies over the past four years, from $27 billion to $76 billion, have been due to Israel's geopolitical challenges.”

Whether intentional or not – and some say that Fischer saw the future – that hoard of dollars may be Israel’s saving grace if any military attack on Iran plunges the Israeli economy into a deep recession.

If a war between Israel and Iran were to cause a panic among foreign investors selling shekel investments, the local currency could plummet. Fischer then could come to the rescue, using the hoard of dollars to buy up shekels and prevent the collapse of the currency.

"An uncoordinated attack is liable to cause an economic catastrophe that will include a severe recession and sharp depreciation of the shekel,” said foreign currency trader Atrade, quoted by Globes.

An attack could cause world oil prices to double, causing a spike in manufacturing costs. Long-time disaster forecaster Prof. Nuriel Roubini sees nothing but disaster on the horizon.

Israel survived previous wars, but the Yom Kippur War and the Intifada had a significant impact on defense spending, which soared.  

"The defense establishment has been riding the Iran wave for three years now, in order to ask for budget supplements, a top economist, who has been involved in defense budget discussions for years, told Globes.