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The auditor's reference to foreign exchange reserves is deficient
The State Comptroller has serious allegations against the foreign exchange reserves held by the Bank of Israel.
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salvo
Bank of Israel
State Comptroller
Dollars
Sonia Gorodisky
Monday, October 18, 2021, 08:37 Updated: Tuesday, October 19, 2021, 17:18
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When I read the chapter of the State Comptroller's report dealing with the management of foreign exchange reserves by the Bank of Israel, I was surprised. Most of the criticism against the same basic principles I learned to be a forex trader in the past.
"As of February 2021 the total foreign exchange reserves held by the Bank of Israel estimated at 185 billion dollars, it in front of the desired level, which is about 70 to 110 billion dollars. This resulted in "The deficit accumulates in the capital in the amount of NIS 70 billion and may impose a goodwill risk on the Bank of Israel," the auditor writes
. Despite this, it is difficult to overstate the public importance of the State Comptroller's reports. However, with all due respect, when it comes to the foreign exchange market, special knowledge of the dynamics of the local market, of the local players and foreigners active in it is required, and it should be remembered that this is not an exact science in which countries can be compared by certain standards.
Five comments on the foreign exchange reserves chapter in the auditor's report
In twisted legal language, the auditor suggests reconsidering the level of foreign exchange balances held by the bank or in other words thinking about selling the dollars. The Israeli foreign exchange arena is small, with quite a few "speculators" active, which affect the exchange rate.
In Israel, as in other countries, foreign exchange traders analyze every sentence uttered by the Governor in statements regarding the level of interest rates and foreign exchange policy.
Analysts compare the wording of the latest post to the previous post and look for clues as to future policy.
Therefore, even such a recommendation, which is given by a government body, will be seriously considered.
There is a consensus in the foreign exchange market that without the Bank of Israel's foreign exchange purchases, the dollar would probably have traded well below 3, which could have led some exporting companies to consider their steps regarding staying in Israel. This, while Israeli exports have a decisive effect on economic growth (and in particular, on state revenues from taxes) which is especially important now in the period of recovery from the corona crisis in light of the budget hole and high unemployment.
2. As one of the "shortcomings" was also the fact that the Bank of Israel did not sell dollars when the dollar reached a level of over 3.80 with the outbreak of the crisis in March 2020. Here the question arises, what would the author of the report have written if the dollar continued to climb to 4.20? Is the Governor of the Bank of Israel expected to be a foreign exchange trader for the purpose of making a profit? The answer is no. We will not deal with attempts to predict the future dollar exchange rate, but it can be said that since the Bank of Israel's announcement of the latest foreign exchange purchase program, there has been relative stability in the foreign exchange market and despite the boom in export-oriented On a measure.
"There is a material deviation of the actual level of reserves from the upper level of the desired level set by the Governor of the Bank of Israel. This deviation indicates the holding of excess balances and may impose a goodwill risk on the Bank of Israel," the Comptroller writes. is that so? Credit rating agencies see things differently. For example, in a review of S & P's credit rating, the Bank of Israel's credibility is noted and it is said that current foreign exchange reserves almost twice cover the external debt of the State of Israel.
4. Further, it is recommended that " The need to change the principles according to which the governor will decide on the desired level of long-term foreign exchange reserves, with the approval of the Minister of Finance. "This statement is also inconsistent with what is practiced in other developed countries. And again, I would like to mention the rating companies that note, among other things, the independence of the central bank.
5. Regarding the level of balances in relation to GDP, the State Comptroller's report is largely based on an international comparison, with the comparison group taken into account being that of South Korea, Thailand, the Czech Republic, Poland, Malaysia, Peru, South Africa, Chile and Hungary. , Which are defined in the report as "the group of countries accepted for comparison with Israel" according to the International Monetary Fund.
But when it comes to the weight of exports and the appreciation of the currency in recent years - the connection between them and Israel is quite coincidental.
In fact, only in two of the nine countries of the comparison group has the local currency strengthened in the past year - in the Czech Republic and South Africa.
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