March 1, 2008
As U.S. dollar plummets, Israelis rediscover the shekel
As the U.S. dollar continues its spectacular nose dive -- it has lost 20 percent of its value against the shekel in the past year -- Israelis have rediscovered the bright greens, reds and purples of their own currency.|
No longer the subject of derision or victim of hyperinflation, the shekel is now among the strongest currencies in the world. For the first time in years, businesses and real estate agencies that once dealt only in dollars are now instead setting their rates to the shekel.
Overall, the transition to a shekel economy is good news for Israel, said Jospeh Zeira, a professor of economics at Jerusalem's Hebrew University. Zeira said it reflects a strong economy that is attracting investment from abroad.
"It means that we are less dollarized," he said. "It shows the public has a lot of confidence in our currency."
But the ever-plunging U.S. dollar is a mixed bag for Israelis.
While the strong shekel has meant more buying power for Israeli consumers, American immigrants with salaries or pensions in dollars have seen the value of their monthly checks shrink dramatically, Israel's export industry stands to lose greatly and even the Israeli military is grappling with the reduced value of the U.S. aid dollars it receives.
Over the past two years, the dollar has dropped against the shekel by about 25 percent -- 13 percent in the past six months. The shekel currently stands at 3.60 against the dollar.
An e-mail joke making the rounds in Israel shows a picture of the U.S. dollar with this subject line: "The new 3 shekel note."
In Israel's export industry, businessmen say the industry stands to lose $2 billion to $3 billion because of the plummeting dollar. Israel has a very small domestic market, and exports comprise nearly half of the country's gross domestic product.
In an apparent effort to soften the effects of the falling dollar, the Bank of Israel increased interest rates by a significant half-percent last week.
American immigrants who retired to Israel and are living off their dollar savings and pensions are surprised to find themselves in unexpected financial circumstances. Some say they are curtailing their travel plans and avoiding restaurants.
Simmy Friedman and his wife, Dorothy, recent retirees from Florida, made aliyah in September 2006. They say they have not changed their spending habits but do feel the impact of the new situation.
"When we came the shekel was 4.34 [to the dollar], and that is what we predicated our living expenses on," Friedman said. "We are extremely happy here and would not have changed our minds" about coming, "but it definitely impinges on our budget."
Describing the process of converting his monthly Social Security check for a dwindling amount of money, he said, "It's a serious, serious problem."
High-tech companies that raise money and set their budgets in dollars also are feeling the crunch.
"Most of them are dollar-based companies -- everything they do is abroad except for their research and development, which is done by a workforce here paid in shekels," said Aaron Katsman, the managing director of Israelnewsletter.com, a financial newsletter that focuses on Israeli companies that trade in the United States. "Their expenses have risen dramatically because their labor costs have risen dramatically as they convert their funds to shekels.
"We see in their earnings reports and every quarter that people are complaining," he said.
New start-up companies in particular are hurting because suddenly their projected costs are askew, Katsman said, making it difficult to plan for the future and raise money.
One recent American immigrant who kept his U.S. job in the high-tech industry when he moved to Israel said he is especially feeling the weakness of the dollar now that he is buying a home here. But the immigrant, who asked not to be named, said he is not looking to switch jobs just because of the dollar's weakness.
"Israel-based jobs still don't come close to the salaries of an American job at this point," he said. "If they did, no immigrants would still be working in America."
Shlomo Namdar-Kaufman, who owns and runs an industrial design firm in Tel Aviv, started charging clients in shekels for the first time about two months ago.
"People are going over to shekels because they see it's more stable," he said. "People are saying, 'I pay salaries, taxes and materials in shekels. It's time to stop speculating on the dollar.'"
Imported goods into Israel are now cheaper, and for the consumer that means savings, including cheaper big-ticket electronic items like TV sets and washing machines.
People whose rent has been linked to the dollar find themselves paying less rent every month. Landlords are responding by setting new leases in shekels.
Prices of apartments and houses for sale still are mostly set in dollars, but they have risen to match the fall in the dollar's value.
High-ranking army officers have expressed concerns that the defense budget, and therefore Israel's preparedness for war, might be harmed because of the dollar's drop.
One senior officer told the Jerusalem Post the army could lose $500 million from its current budget because of the reduced value of the dollar combined with a rise of fuel prices. He said the army has delayed converting U.S. aid money into shekels because of the low rate of exchange.
Sever Plocker, writing in Israel's daily Yediot Achronot, told Israelis to welcome the plummeting dollar instead of wringing their hands over what it all means.
"These fluctuations are a blessing. They liberate the Israeli public from its strange addiction to the dollar," he wrote. "Our hair will turn white if we attempt to predict what will happen to the dollar tomorrow or two days from now. Forget about the dollar, Israelis. Stick to the shekel."
Zeira, the economist, said this is the right response.
"My only advice is to move to the shekel," he said. "It's a better currency and it's ours."
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