The Rise of the Shekel

December 9, 2021 | Matti Friedman
About the author: Matti Friedman is the author of a memoir about the Israeli war in Lebanon, Pumpkinflowers: A Soldier’s Story of a Forgotten War (2016). His latest book is Spies of No Country: Secret Lives at the Birth of Israel (2019).

In the mid-1980s, the Israeli government, facing runaway inflation and a general economic crisis, implemented a series of fiscal reforms, which included the introduction of the New Israel Shekel. Not only has it proved far stabler than its predecessor, its recent increase in purchasing power has helped make Tel Aviv the world’s most expensive city. Matti Friedman writes:

It wasn’t too long ago that a dollar could easily buy four shekels—in fact, there was a time when a dollar could buy 1,630 shekels [old shekels, that is]—but as I write these lines the dollar is struggling, incredibly, to buy a measly three. The dollars in my bank account are worth a fifth less in shekels than they were last March, and the same trend affects my parents’ pensions and what I’ll get from Tablet for writing this column.

American currency has always played an important role in the emotional life of Israelis, who used to hoard dollars under floor tiles. Serious business was done in dollars, which were like that stable guy who’d always be there for you. Our own colorful shekel notes, by contrast, were like the high-strung friend you hung out with but wouldn’t trust with your car.

But important as the reforms of the 1980s were, governments do the most to help economic growth by staying out of the way:

Those watching Israel from the outside are condemned to mistake political news for the life of the country. Insiders understand that over the past two decades something deep has come together here in culture and economics, and that modern Israeli society is only tenuously connected to the government. That’s the answer to a perplexing question—namely, how on earth the economy managed to boom through the past two years of political deadlock and infighting, with no national budget.

“It’s a reflection of the fact that to some extent our economy isn’t dependent on the government,” [the Tel Aviv University economist] Paul Rivlin said. “The politicians can muck it up, and I wouldn’t put it past them, but even having four elections one after the other didn’t do it.” Just in the first half of this year the sum of foreign investments in Israel, mainly in tech, reached $37 billion—close to the sum for all of the previous year, and greater than the sum for the year before that.

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