During my first trip to Israel in 1983 the director of our program stood at the front of the bus and said, “I don’t know if you’ve heard the news, but overnight you’ve all become rich and we’ve all become poor.” It was the first time I had heard the term devaluation, but its meaning was clear. The value of Israeli currency was not what it had been. When we arrived in September 1983 one dollar was worth about 60 shekels. The rate changed daily. Every month the cost of a bus pass or a can of coke was adjusted. We felt the inflation, although we were only there for four and a half months. By the time we left in February, the shekel was worth less than half as much as it had been when we arrived, falling to an exchange rate of over 120 shekels to the dollar.
From that experience I understood why Israelis did not save and spent money before they had it, paying with post-dated checks, going into overdraft with bank balances below zero in their checking accounts (the Israeli equivalent of credit card debt) or paying in as many payments as possible. If I bought groceries today, but could pay for it over the next three months, by the time the last payment was made, the money paid for it was hardly worth anything.
Four years later, the next time I came back to Israel, the Shekel had been replaced with the New Israeli Shekel at a rate of 1000 to 1. The one thousand shekel bill with an image of Rambam was reprinted as One New Israeli Shekel. Now the bill is out of circulation entirely and only a one shekel coin is used. Imagine if one hundred dollar bills with Ben Franklin were suddenly reprinted looking the same but with the value of One New Cent. That is what happened in Israel.
Today not only has the Israeli economy stabilized, but we seemed to have turned a corner. During the first half of this decade the shekel was relatively stable against the dollar at an average exchange rate of about 4.5 shekels to one dollar. Last year the dollar fell to an exchange rate of one dollar to 4 shekels and in the first few months of this year it fell to its ten year low of about 3.5 shekels.
As an American, whose first experience with Israeli currency having been an unstable one, I have always felt more comfortable in dollars than in shekels. As a dual citizen, I maintain bank accounts in both the US and Israeli currencies. When I first opened my bank accounts in Israel, it dawned on me that perhaps I was better keeping my money in British Pounds or Yen. Suddenly a whole world opened up to me. However, I had faith in the dollar and so have always kept the majority of my savings (and my children’s savings) in US Dollars. In the first few months of this year, those savings lost over 20% of their value.
My savings are long-term and hopefully by the time my children need them, their value will rebound. However the devaluation of the dollar has had a very real and immediate effect on many Israelis.
Those most immediately effected are for those American Israelis who live on a fixed dollar income, especially those who have retired here and live on social security. All of a sudden when they cash in their check, they get less money, but the food they buy has not gone down in price. Extend that from people to businesses. Many Israeli businesses, including my Web design business, have foreign clients, be they tourists or businesses. The prices for such services are often quoted in dollars: Not any more. In the last few months many businesses have changed their rates from dollars to shekels. The dollar is no longer stable. Israelis have more faith in the shekel than the dollar.
It is no secret that in both business and charity, there is a lot of foreign investment in Israel. It is perhaps these areas that are hurting the worst due to the dollar’s devaluation. For example, I know of an Israel program for high school students which is subsidized by US donors. Almost all of the expenses to run the program are in shekels, yet the income to pay these expenses is in dollars. At this point, it would be better if the participants canceled; their tuition does not cover the costs and the organization can’t go back to our donors and ask them for 20% more because their contributions are worth less now. High-tech start-ups funded by venture capital funds receive start up money in dollars, yet the expenses of Israeli start-ups are in shekels. All of a sudden, their budgets have been slashed by over 20%.
Despite the hardship, I have to say that there is something nice about having changed my business rates from dollars to shekels. I feel more independent as an Israeli. Now if the value of the shekel goes up or down I will adjust my income and expenses in the same currency. It seems healthier and more mature for the economy and for the society in general.