TLR 200-Shekel/ Dollar Intervention: Faster, Higher, Stronger

 

 

On January 14, I was engaged in writing a newsletter focused on Israeli domestic politics and the upcoming general election. That, however, was interrupted by the dramatic – although, under the circumstances, not wholly unexpected — announcement from the Bank of Israel of an important change in exchange rate policy. In a nutshell, the Bank committed to spending $30bn this year on intervening in the foreign exchange market to buy dollars and thereby stop, or at least slow, the rise in value of the shekel.

 

It was immediately clear to me that this was a major development and I determined to write a Bulletin explaining why I considered it to be so significant – especially after the shekel fell by over 5% over the following days, in reaction to the announcement. However, as soon as I started to present some background to this specific move, I realised that my own assessment – that this event was on a par with Governor Stanley Fischer’s decision in March 2008 to renew intervention in the foreign exchange market, after a hiatus of 11 years – required me to give a much broader and deeper review of exchange rate policy over the years, explaining when, how and why it had changed.

 

The simple fact is that many people currently in the shekel-dollar market – traders, analysts and other financial professionals – do not have a long-term perspective of that market. This is also the case for corporate executives – the big winners of the last week’s events. Furthermore, if that is true in Israel, it is even more valid overseas. My conclusion therefore was that in order to present this latest development in its full historical, institutional and personal context, I must paint a full picture on a broad canvas, rather than apply a few dots and expect people to be able to join them.

 

I have highlighted the personal aspect, by comparing and contrasting the policies and attitudes of various governors, in particular Jacob Frenkel, Stanley Fischer and Amir Yaron. They have specific features in common, but the mere fact that today it is relevant to make this comparison is an implicit recognition of the fact that Amir Yaron has ‘arrived’, that he is doing remarkably well in an impossibly difficult situation and that he actually deserves to be talked about with the same respect as Frenkel and Fischer. One year, and perhaps even three months ago, that would not have been the case.

 

It remains to be seen whether Yaron’s efforts prove to be wholly or even partially successful. What is certain is that Israeli politics, which many people find so complex and confusing and to which I will soon return, is straightforward compared to the foreign exchange market.

 

 

 

 

 

CONTENTS

 

 

 

 

 

 

E: Local markets:

A brief history of Bank of Israel governors and exchange rate policy

 

 

  1. Once upon a time

 

 

  1. Independence, liberalisation, convertibility and non-intervention

 

 

  1. Intervention again — but in the other direction

 

 

  1. You’re on, Yaron

 

 

 

 

a]  Once upon a time

 

Every central bank governor — and most assuredly, every governor of the Bank of Israel — will face a crisis during his term in office. The nature of the crisis usually reflects the specific features and characteristics of the economy within which that central bank operates, and/or the of the financial system of the country. In Israel, that has meant that the crisis with which the governor will have to contend will be an exchange rate crisis.

 

For the first fifty years of Israel’s existence, an exchange rate crisis inevitably meant that the currency was under severe downward pressure. This stemmed from the country’s chronic balance of payments deficit: from its creation in 1948 and through the end of the twentieth century, there was only one year — 1986 — in which Israel recorded a balance of payments surplus, the exception resulting from unique, unrepeatable circumstances. The norm, regarded for decades as a given by academic economists and policy-makers, was a deficit, fueled by a massive gap between imports and exports of goods.

 

The economic policy question was how big that deficit would be, whether and how it could be financed — and if it could not, when and how big a devaluation would be needed. In the era of fixed exchange rates, these devaluations were always accompanied by crises, sometimes purely economic, other times part of a wider military-security crisis. Later, the exchange rate regime changed to ‘dirty’ floats and, eventually, clean floats, which allowed the currency to adjust its value gradually, rather than in abrupt jumps. But whatever the regime and whatever the rate of adjustment, the direction was uniform: the value of the Israeli currency went down – not necessarily every day, but most definitely over time, as Chart 1 illustrates.

 

Chart 1: One-way street: Shekel/ dollar rate, July 1, 1985 – May 4, 1998

 

 

In this economic reality, the central bank’s job was to try and prevent a crisis that would deplete the Israel’s limited cushion of foreign currency reserves. The governor’s job was to try and persuade the government, and especially the finance minister, to adopt policies — especially fiscal policies — that would not aggravate the chronic problem of the current account deficit and thereby trigger yet another macro-economic crisis and yet another major devaluation. In this context, it should be recalled that, until 1986, the Bank of Israel and its governor had no independent status but rather were under the thumb of the Treasury.

 

 

B] Independence, liberalisation, convertibility and non-intervention

 

The period from 1986-2008 was marked by the gradual, but ultimately total, reversal of everything that had characterised the Israeli macro-economy and, most especially, the Bank of Israel and its monetary and exchange rate policies.

 

First, directly following the watershed event of the adoption of the ‘Economic Stabilisation Programme’ on July 1, 1985, the central bank was given independence. This ‘event’ occurred in 1986 but, in reality, was a very gradual process, stretching over many years. The key persona who put substance into the legal, political and bureaucratic ‘declarations of independence’ were the governors of the Bank of Israel in the following period — first, the late Michael Bruno and then, from 1991, Jacob Frenkel.

 

It was Frenkel and his successor David Klein who, through the single-minded pursuit of a classic monetarist approach, eliminated the scourge of inflation from the Israeli economy — in which it had long been assumed to be inextricably embedded. This enabled them to stabilise the currency and to gradually liberalise the exchange rate regime, allowing freer movement of foreign currency into and out of the country. This process climaxed in May 1998 when, with the enthusiastic support of the then-premier — Benjamin Netanyahu, a young, reform-minded and strongly monetarist and free-market-oriented leader, quite unrecognisable from the current premier of that name — the shekel was made “fully convertible”, although the “fully” part of that title was not actually achieved until 2003.

 

But even prior to that landmark event in 1998, Frenkel had made another fundamental change in Israeli economic policy. With effect from 1997, the Bank of Israel desisted from intervening in the foreign exchange market. Given that the direction of the shekel had always been down, “non-intervention in the market” meant in practice no longer using the country’s limited foreign exchange reserves to sell dollars and buy shekels in an effort to prevent, or at least slow, a decline in the value of the shekel.

 

Yet when Frenkel stopped supporting the shekel its value remained stable. True, later in 1998, its value plummeted (see Chart 2) – but that was due to a global crisis rather than any domestic development. In fact, 1998 ushered in a new era, in which the shekel became a ‘normal’ currency that moved in line with wider global trends, part of the “non-dollar” bloc. This was made possible by two dramatic changes in the Israeli economy. First, inflation was now very low, so that from a monetarist viewpoint the currency should not lose value and, second, the deficit on the balance of payments was shrinking, so that from a Keynesian standpoint the same was true.

 

The exception to this “new normal”, as is apparent in Chart 2, occurred in 2002, when the Israeli economy was in the throes of a severe recession caused by the second intifada, which was exacerbated by a major fiscal crisis – the result of massive policy errors. The crisis climaxed in a classic “run on the shekel”, a throwback to “the bad old days”, with the shekel plunging to a record low value of NIS5 to the dollar. Only a dramatic doubling of interest rates within six weeks succeeded in restoring confidence and reversing the shekel’s slump.

 

Yet that same year of 2002 saw a landmark event in Israeli economic history that went almost unnoticed against the background of the crises in the economy and the country’s security: the balance of payments swung from minus to plus. Since that year, the hitherto chronic deficit has been replaced by an equally “chronic” surplus.

 

 

 

 

 

Chart 2: What goes down also goes up: Shekel/ dollar rate, May 5, 1998, March 3, 2008

 

 

 

Thus, the key features of the Israeli economy in the twenty-first century have been zero inflation, a surplus in the balance of payments and – at least since 2002 — fiscal discipline. The inevitable result of an economy having these characteristics has been a strong currency with an underlying trend of gaining in value. Every word in this paragraph would have been regarded as impossible, almost inconceivable, between 1948 and the early 1990s, but this has become the reality of the past 20-25 years.

 

C] Intervention again — but in the other direction

 

Frenkel’s doctrine of non-intervention in the foreign exchange market was ‘inherited’ by his successor, David Klein who, as deputy-governor, had been a full partner in its adoption. More interestingly, it was also espoused by the next governor, Stanley Fischer, when he took over on May 1, 2005.

 

It’s worth comparing the appointments of three ‘imported’ governors. Offering the job to Frenkel had been a daring and surprising move by Prime Minister Yitzhak Shamir in 1991. Born and educated in Israel through graduate school, Frenkel had earned a doctorate and gone on to become a prominent professor at the University of Chicago, the home of monetarism. It was this doctrine that he brought with him and, despite total disbelief and fierce opposition on the part of the Israeli business and financial establishment, imposed on the Israeli economy — with extraordinary success.

 

Fourteen years later, StanleyFischer arrived to a very different economy. His appointment was far more amazing than that of Frenkel – and remains one of the outstanding successes of Netanyahu’s career, achieved during his outstandingly successful stint as Finance Minister from 2003-2005. Netanyahu somehow persuaded Fischer – who, when holding senior posts at the World Bank and IMF, had become an advocate and practitioner of the set of neo-liberal economic policies known as the ‘Washington Consensus’ — to move to Israel, become an Israeli citizen and assume the governorship of the central bank. This implicit confirmation of the Israeli economy’s maturity and success made waves globally and raised the professional status of the Bank of Israel to an unprecedented level: Bruno and Frenkel had each been highly respected in professional circles, but Fischer was perceived as being in a different league.

 

The first two years of Fischer’s tenure passed uneventfully. The Israeli economy was growing rapidly, the “new normal” conditions of negligible inflation and a current account surplus, along with rapid improvement in the fiscal situation, enabled him to do little or nothing in the area of economic policy. Doing nothing when it is not necessary to do anything is an important achievement for any policymaker, but Fischer was to be given a much sterner test.

 

In 2007 the global real-estate bubble burst (in the US, UK, Spain, Ireland and other Western economies) and the subprime lending crisis in the American financial system exploded. Among many other consequences, this led to the end of a period that dated back to 2001, of US dollar strength in the global markets. This rising trend in the US dollar had constrained and obscured the growing strength of the Israeli shekel — which, since the historic low of 2002, had gained in value against all other currencies.

 

During late 2007 and early 2008, against a background of a rapidly developing financial and economic crisis in the US, the dollar tanked — and the shekel shot up. For the first time, the strongly positive trends in the Israeli economy, including the resilience of its banking sector compared to the tsunami engulfing its peers in the developed world, came into full focus. Currency traders and smart investors began buying shekels and, as the Israeli currency’s value rose, inflows of foreign money surged.

 

The Israeli economy, the Israeli government and the Israeli central bank were now faced with a currency crisis the like of which had never been seen and few had imagined possible. The shekel was going up and up — in value, meaning that its rate of exchange was going down and down: from a recent high of NIS4.35 in August 2007, through the level of NIS4/$ and rapidly downwards – meaning upwards in value – to below NIS3.50 and then NIS3.40 in March 2008.

 

Chart 3: The birth of the strong shekel and the return of intervention: Shekel/dollar rate, April 4, 2007 – June 30, 2009

 

 

The reason this was a problem — which rapidly developed into a major crisis– was not immediately obvious to the public, or even to policymakers and remains something of a mystery to many people even today. There are numerous consequences to having a currency rise rapidly in value, some positive and some negative. But in Israel’s case, there was one that was decisive — and it was negative. Because Israel is a small, open economy with no natural resources (at least not in 2008), it has to survive in the global economy by selling goods and services overseas — in a word, exports.

 

The higher the shekel’s value versus other currencies, the cheaper the cost of imports to Israel and the higher the price of Israeli exports when priced in dollars, euros etc. This meant that Israeli manufacturers producing goods for the domestic market would find it increasingly difficult to compete with foreign competition, because the imports would become cheaper in shekels. By the same token, Israeli exporters would find it difficult to compete in foreign markets, because their competitors would be able to charge lower prices in dollar terms than would the Israeli companies. Of course, the Israeli companies could cut prices, but that would mean lower (or no) profits and would lead ultimately to the same result — they would lose market share and eventually go bust.

 

In short, the main negative impact of the shekel’s rise was in the corporate sector — and the higher and faster the shekel rose, the greater the damage to corporate competitiveness and profitability. In sharp contrast, for Israeli consumers and tourists the shekel’s strength was a windfall.

 

Against this background, the Israeli business sector began to squeal louder and louder and to lobby harder and harder for help — which, in practice, could only come from the Bank of Israel. To cut a long story short, in March 2008 Fischer terminated the policy of non-intervention in the foreign exchange market and, within a few months and as the global crisis rapidly worsened, went to the other extreme – by formulating a new doctrine of ongoing, and potentially permanent, intervention.

 

This period was marked by confusion and serious tactical mistakes in the way the intervention was announced and conducted. Consequently, there were several iterations of the new policy before it eventually settled down into a clear and consistent format. Those details are irrelevant from an historic perspective; what matters are the underlying principles of the policy — and these were formulated under Fischer and adhered to by his successor, Karnit Flug, during her governorship from 2013-2018.

 

The single most important principle was macro-economic: the export sector (and, within it, the high-tech industries that are entirely responsible for Israel’s “chronic” current account surplus) is more important than any other sector in the Israeli economy. It must therefore be supported — not protected, but supported. That entails preventing sharp, sustained upward moves in the shekel. These are to be prevented by the Bank of Israel buying foreign currency in the market and thereby building up reserves — even to levels far higher than anything envisaged, let alone seen, in the past.

 

This policy comes with very high costs: first, the central bank uses shekels to buy the dollars — but where do these shekels come from? If they are ‘printed’, meaning created out of thin air by the central bank, that may well cause a rise in inflation. Therefore the ‘injection’ of shekels into the economy that comes with intervention has to be ‘neutralised’, which is achieved by selling short-term government bills (known by their Hebrew acronym ‘Pakam’).

 

But, having bought billions of dollars — what do you do with them? Clearly, they have to be invested but, in a world of zero or even negative interest rates, finding low-risk investments suitable for a central bank is very hard. Meanwhile, the central bank has to pay interest on the Pakam bills it has issued. The bottom line of this process of borrowing shekels to buy and invest dollars is brutally simple: the Bank of Israel receives almost no interest and pays very little – but still more than it receives. It therefore winds up with a loss.

 

Worse, because the long-term trend of the shekel is upward — for the fundamental reasons noted earlier, primarily the “chronic” current account surplus and the general success of the Israeli economy — anyone owning foreign currency will lose money in shekel terms. The Bank of Israel, which owns a huge pile of foreign currency, will lose a vast amount of money, in shekel terms, over the long term.

 

However, the alternative is even worse. Not intervening, but rather allowing the shekel to rise without impediment will a) trigger a massive switch by Israeli consumers to buying overseas whatever possible — which will destroy large swathes of domestic industry, commerce and retail activity; b) critically, the high value of the shekel will force much of the high-tech sector to move overseas, or to go bust. That will gut the goose that lays the golden eggs. True, after an economic crash the shekel will be much cheaper — but most of the damage done by then will be irreversible.

 

The bottom line, therefore, is that the intervention is a complex mechanism aimed at subsidising the Israeli export sector. Of course, the Bank of Israel and all government entities will fiercely deny this fact – as they must do, because subsidies are illegal under international agreements. That is precisely why this convoluted system has been used, because any form of direct subsidy would generate trouble. That is also why the ideological purists, especially in academe, are opposed to the intervention policy. However, the fact that all Israeli policymakers, including three successive governors, have been obliged to fall back on intervention as the only legal and effective way to prevent the shekel from becoming severely over-valued and inflicting intolerable damage on the real economy, speaks for itself.

 

To revert to the narrative, the critical national interest of minimizing, or at least reducing, the damage stemming from an over-valued currency was the basis for Fischer’s decision in 2008 to resume intervention — and is what lay behind the maintenance of the new intervention policy, in whichever guises and via whatever tactics, for more than a decade.

 

 

D] You’re on, Yaron

 

On December 24, 2018, Professor Amir Yaron was formally installed as the new governor of the Bank of Israel. The very first thing he did, in his inauguration speech, was to announce the termination of the Bank’s intervention policy in the foreign exchange market. This was a reversion to the Frenkel/ Chicago/ free market/ laissez faire philosophy and policy that had held sway from 1997 to 2008 and — hence a very significant development in Israeli economic policy.

 

Nevertheless, this public announcement, made to an audience comprising the president, prime minister, supreme court justices, speaker of the Knesset, ministers – in short, the people who run the country – was almost totally ignored.

 

It must be assumed that Yaron’s intention was to make waves – why else would he be so forthright regarding something he could have done gradually and quietly? If that is so, he learnt on his first day in office that in anything to do with the markets, timing is everything. Although his most directly-impacted audience, namely the domestic financial markets, did react to his declaration – evidenced by the sharp rise in the shekel’s value in the following days, despite the absence of foreign traders over the Christmas break – virtually no-one else paid any attention, either to Yaron’s words or to the market reaction.

 

The reason for this indifference was very simple: December 24, 2018, was also the day that the government led by Netanyahu fell and that the political system began gearing up for a new general election to be held in April 2019. In other words, public attention was focused almost entirely on political developments – and hardly at all on economic or financial ones.

 

Before continuing the story, it is critical to highlight a unique aspect of Yaron’s governorship, something that began on his first day in office and has continued until the present. This is the political and governmental vacuum. Of course, on December 24, 2018, no-one could conceive of a political stalemate that would extend for at least 2 ½ years and four elections – but that is what has happened.

 

To be governor of the central bank is never easy, but to be governor when there is no stable government – often no government at all – and no budget or fiscal policy is far more difficult. Now add to that a pandemic and a partially paralysed economy…

 

Nevertheless, there is a precedent of some sort for Yaron’s predicament. In 2008-09, as the global crisis metastasized into an economic slump, the Israeli government was plunged into crisis by the resignation of then-premier Ehud Omert on July 30, 2008, ahead of an indictment (and eventual conviction) on bribery charges. Initially, he remained in office pending the election of a new leader of his Kadima party. However, his successor as leader, Tsipi Livni, proved unable to win a parliamentary majority, leading to a general election in February, 2009 – which she lost. Olmert served as caretaker premier throughout this period, as the law required.

 

It thus transpired that when the world underwent its most severe financial shock and economic crisis since the 1930s, between August 2008 and April 2009, there was no properly functioning Israeli government. Fortunately for the Israeli economy and public, there was a responsible adult who could – and did – take command, steering the economy through the unprecedented turbulence: Stanley Fischer.

 

Fast forward to December 2018: Yaron, another Israeli-born academic who had made a career in the US, became governor, at the invitation of Netanyahu. He was much less well-known, even in academic and professional circles, than Frenkel had been in 1991, and totally unknown in Israel, outside of a very narrow group of economists. Netanyahu had found and appointed him because he wanted someone who shared his free-market philosophy, especially regarding the role of government in the economy – unlike Karnit Flug, Fischer’s deputy, whom Netanyahu had been obliged to reluctantly accept as governor in 2013.

 

It must be assumed that Yaron’s extraordinary inaugural speech, in which he declared that he would both stop intervening in the forex market and would raise (!) interest rates on the shekel, had been coordinated with Netanyahu. However, between the speech’s writing and delivery, Netanyahu’s coalition fell. Over the next two years and through multiple elections, Netanyahu’s political power has eroded and his involvement in economic policy has faded. Yaron was thus quickly left on his own – with no experience in national policymaking, let alone in the complex Israeli political/ bureaucratic environment.

 

His learning curve was sharp – and cruel. Within six months of his ringing opening declarations, he reversed course on both key fronts. The reversal of policy by the US Federal Reserve Bank, from raising American interest rates to holding and then cutting them, removed the cover Yaron had needed and expected to have for his projected raising of Israeli interest rates. The Fed’s reversal also caused the dollar to weaken and thereby added pressure to a shekel that was already rising – see Chart 4 — thanks to Yaron’s removal of intervention as a brake on it.

 

Thus, in the course of 2019, Yaron’s announced agenda simply evaporated, to be replaced by no change in interest rates and a return to intervention in the forex market — to the tune of billions of dollars a month towards the end of the year. This intervention was made necessary by the steady rise of the shekel during the year, as is apparent from Chart 4.

 

Then came 2020 and Covid-19. Globally, government intervention – whether in the form of fiscal injections or monetary support – soared to unprecedented levels. However, the sudden realisation in February-March that the world was abruptly swinging from a mildly positive track to an impending economic disaster triggered a severe and intense financial crisis. As usual in such circumstances, there was a flight to the perceived safety of the US dollar, compounded by liquidity shortages in many financial markets. The dollar soared against all currencies, until the Fed and other central banks intervened massively to reduce the pressures and restore orderly trading. The shekel’s value slumped and rebounded accordingly.

 

 

Chart 4: Up, oops and away: Shekel – dollar rate, December 26, 2018 – January 13, 2021

 

 

 

However, after the drama in March – the “oops” in Chart 4 — the underlying trend of shekel strength reasserted itself and the shekel/ dollar rate dropped through NIS3.50/ dollar. At these levels, central bank support – meaning the purchase of dollars — intensified and this led to a short-lived reversal in September and an equally short-lived period of stability in October (see Chart 5), by which time the shekel was trading below NIS3.40/$, the level at which Fischer had reversed course and begun to intervene in March 2008.

 

Chart 5: Rising to generational highs: Shekel/ dollar rate, October 1, 2020 – January 14, 2021

 

 

 

 

 

In late 2020, the dollar was falling in value across the globe. For its part, the shekel — as a currency representing a relatively sound economy — was attracting growing speculative interest, primarily from overseas, leading to a stronger rate of ascent (in value), in tandem with a growing imperviousness to the attempts of the Bank of Israel to restrain it.

 

January 2021 opened with the shekel breaching the lowest exchange rate (highest value) it had reached in 2008, namely NIS3.23 to the dollar, and from that point the media reported almost daily new record levels – of 20 years, 25 years and then to levels not seen since the late 1990s.

 

This process took place despite a state of total political dysfunctionality, during an election campaign the outcome of which remains entirely unclear and with no national budget for the second successive year. Nevertheless, most of Israeli industry was operating and the current account surplus remained as high as ever. But if these real economy considerations did not concern the currency traders (“speculators”), the soaring shekel greatly concerned the business sector, whose wails of woe became louder and more intense with every passing day.

 

On January 14, Yaron broke. The Bank of Israel announced that the Monetary Committee had decided to massively increase the scale of the Bank’s intervention in the foreign exchange market. If, in 2020, this intervention – under the supposedly anti-interventionist Yaron – had reached a record level of almost $21bn, by far the highest since the original crisis year of 2008, now the Bank pre-committed to spending $30bn in 2021. Whether this represents its initial or final bid in its high-stakes poker game was not clear from the statement, but the very aggressive tone of media interviews given that day by Deputy-Governor Andrew Abir suggested that there was no ceiling to the intervention – an Israeli version of the famous “whatever it takes” of ECB President Mario Draghi at the height of the euro crisis in 2012.

 

The initial response of the shekel was a decline of some 6%, from NIS3.11/$ prior to the announcement, to a high approaching NIS3.30 early on Monday, January 18. That is a significant move and signals a recognition that the Bank of Israel’s announcement is itself a major development. Beyond that, everything is open. It seems unlikely that the speculators will renew large-scale shekel buying any time soon – the situation may be compared to the homeowner who, after frequent burglaries, installs sophisticated alarm systems and places a mastiff in the garden.  His efforts don’t make his house invulnerable, but any intelligent criminal will look for somewhere easier instead.

 

No-one disputes that in the long term, the shekel must rise against the dollar, because of fundamental economic factors. One glance at the long-term trend, depicted in Chart 6, confirms that the trend, at least since 2002, has been for the shekel’s value to rise. Of course, as in every market, this is not a straight-line move, but rather a process that encompasses upswings and downswings. Indeed, from the standpoint of technical analysis, the period from 2007 may be described as a falling wedge, with a succession of highs and lows that were each lower than the preceding one – until the break to the downside that has just occurred. In other words, the events of January 2021 are very significant from a technical point of view. Had the Bank of Israel not intervened, it seems that there would indeed have been a strong thrust out of the wedge, to the downside – meaning a lower exchange rate and a higher value to the shekel.

 

The questions that now hang over the market are therefore simple: will the Bank of Israel succeed in breaking the downside momentum and generating a meaningful reversal in the shekel’s direction? Secondly, even if the bank is successful and the reversal takes place, how long might it continue? A technician would probably say that unless the shekel climbs above the previous high – of NIS3.86/$ from March 2020, the current move is merely a correction within the dominant trend.

 

 

 

 

 

Chart 6: Long-term trend of shekel – dollar exchange rate, May 1998 – January 2021

 

 

I would therefore conclude with the following summary and outlook:

 

  1. Governor Amir Yaron has proven that he is not a rigid ideologue, as perhaps Netanyahu thought and as Yaron himself suggested by his inaugural address. On the contrary, he has demonstrated an exceptional capacity to learn on the job, to adjust and even jettison entirely beliefs and dogmatic positions that proved unrealistic – and certainly to the new and unprecedented reality of the Covid pandemic.
  2. Yaron has also displayed great courage. He has undertaken dramatic and far-reaching initiatives despite being alone on the bridge in the midst of a perfect storm. That bears favourable comparison to Fischer in 2008 and speaks very highly of a person once dismissed as an anonymous academic.
  3. However, flexibility and courage are merely essential, but not necessarily sufficient conditions for success. The crisis is still underway and its outcome, both in Israel and globally, is unknowable.
  4. What Yaron needs now is a lucky break, such as a sharp rise in the dollar, for whatever reason.
  5. In wider context, what the Israeli economy needs is the end of the (to my mind) disastrous global experiment with zero and negative interest rates and a return to something resembling normal monetary policy, as conceived of prior to 2008. That, of course, is a wholly different discussion, but it should not be forgotten in the context of current and future Israeli exchange rate and monetary policy.

 

 

 

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