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October 7, 2015 | 24th Tishrei 5776

In God we trust

Galilee Diary #398, July 13, 2008

Marc J. Rosenstein


And Elisha replied, "Hear the word of the Lord. Thus said the Lord: This time tomorrow, a seah of choice flour shall sell for a shekel at the gate of Samaria, and two seahs of barley for a shekel."
-II Kings 7:1

The current state of upheaval and uncertainty in the world economy has created a situation that is new and strange for us here in Israel: we had come to take for granted that the US dollar is the standard of value, solid and stable in comparison to the local currency, which has often, through the years, felt like “monopoly money.” The trend has been consistent:

When I visited Israel for the first time in 1962 there were three Israeli pounds in a dollar. When I came back in 1975, there were seven. There ensued a decade of rapid devaluation of Israeli currency: by 1980, the exchange rate had gone from seven to 75, and the Israeli pound was discontinued in favor of a new currency, the shekel – one shekel was worth 10 pounds, thus bringing the exchange rate back to 7.5. However, by 1985, the rate had jumped from 7.5 shekels to the dollar to 1,000, and the currency was changed again, to New Israel Shekels (NIS), each worth 1,000 old shekels. I remember how amusing and confusing it was to deal with shopkeepers, mechanics, etc., who, suspicious of currency changes, continued to quote prices in old shekels or even pounds – so, for example, you were left scratching your head when told that the cost of a refrigerator was a million (old shekels). From one NIS per dollar in 1985, the rate climbed gradually to a high of 4.7 in 2006 – and then began a process we had never seen before – a rise in value of the NIS relative to the dollar, to the current rate of around 3.2 (July 2008).

Until a year or so ago, it was standard practice to state apartment, car, and travel prices in dollars, to link pension plans and loans to the dollar, to hold on to dollars if you could, as an investment that had always risen in value relative to the shekel. If you received some dollars, you would put them in the bank or under the floor tile on the assumption that they would appreciate until whenever you needed them. No more – it’s been many months already since we understood that this is not just a blip, that something has changed in the world, that stalling on exchanging your dollars for shekels is a bad idea, as all the predicted lower limits have been exceeded just like the red line of the lowest permissible water level in the Kinneret.

This is supposed to be good for the consumer, as it should make the NIS prices of imported goods like cars and electrical appliances drop. However, somehow this doesn’t seem to be happening. On the other hand it is bad for exporters and for Israeli tourism, for it makes Israeli goods and services more expensive for those paying in dollars – or simply reduces the revenue of the sellers: if it costs us, in our seminar center, NIS 900 in salaries, rent, etc. to provide a half day seminar for a touring group, and they had planned their itinerary based on a price of $200 – now either they have to pay $80 more – or we have to take a NIS 260 loss. Since many group travel arrangements and contracts are made well in advance, this is not simple to resolve. And of course for non-profit organizations supported by philanthropic dollars, the impact has been disastrous.

On the personal level, what is significant is not so much the immediate impact, but the sense of anomie, of not knowing what to expect; suddenly key assumptions we had always assumed turn out to be invalid. Suddenly those dollars under the floor tile don’t provide the security we had expected of them. And if you can't count on the ever rising value of the dollar, then what can you count on?

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