Why is the Shekel Falling?

by Ira Davis

Anyone who has been holding shekels versus American dollars the past few months has not exactly been doing too well. That person would have lost 12.5% value of his money. Not such a good return. If the person was holding onto a million dollars in an escrow account held in Israel, he or she would have lost $125,000.

The question is what is the reason why the NIS has fallen? This is especially perplexing since Israel’s economy is both growing and strong. Also, Israel’s interest rates are rising and that usually means that the shekel goes up in value as well. That is not happening here.

Some economists have connected the great fall in the shekel with the government’s plan to weaken Israel’s legal system, but others say that it is the continued protests that are really behind the drop. Currencies drop when more people are trying to get rid of one currency and opting for another.

The Bank of Israel has been trying to keep up with a spiralling inflation rate, but is constantly being surprised by the accelerating and unrestrained rate.