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Count to three: Why is the dollar going down and how is it affecting us?

In the shadow of the dramatic drop in the exchange rate of the euro, we almost forgot the dollar, which fell a little more and is approaching an unprecedented low, which is expected to drop even below NIS 3 against the shekel.

Why does this happen and how does it affect the pocket of us all?

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• dollar

• NIS

• exchange rate

• inflation

• Industry

• export

• will come

Walla!

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Wednesday, 17 November, 2021, 16:20 Updated: 17:23

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You do not have to have an exceptionally good memory to remember how to convert a dollar against a shekel in the head, we would multiply by 4 and sometimes even by 5 ... Yes, the last figure may be a little difficult to remember, but about 20 years ago, At the height of the second intifada, the dollar was traded here at a representative rate of 4.98, and in cash transactions conducted in those days of terrorist attacks, its rate "on the street" exceeded 5 shekels.

why did this happen? The Israeli economy then seemed more fragile than ever, personal security was low, tourism to Israel almost ceased altogether, and no one could say when the political-security-economic crisis would pass. Oslo that failed), which arrived shortly after the dot.com bubble burst in the capital markets around the world, which also radiated to quite a few Israeli companies.

Therefore, it is worth saying, even before the subtleties are required: the fact that the shekel is strong against the dollar may open the door to some problems that we will get to soon, but it is first and foremost evidence of Israel's economic strength.

While politicians are arguing over who gets the credit for it, it can be said that it is big enough to disagree with: Netanyahu's governments, in general, have been good for the Israeli economy - and about five months into the so-called "change government", it can not only continue. Success, but even advancing it, will be evidenced by almost every possible macro parameter at the macro level.

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Traditional industrial plant: low dollar and strong shekel keep sleep out of the eyes of the manufacturers, who pay in shekels and receive in dollars (Photo: ShutterStock)

But why is it even going down?

So why is the dollar going down? There are several reasons for this, but the main one is related to the level of interest rates in the economy: if we take the "star" of recent days, the euro, we will find that one of the reasons for the sharp fall in the European currency was that in Israel the central bank governor hinted It seems that, at least until the second half of 2022, the European Central Bank does not intend, according to estimates, to raise interest rates in the next two years.

And in the context of the dollar: While inflation in Israel is within the limits set by the Bank of Israel of "up to 3%", which we may reach at the end of the year, inflation in the US, after the Fed's accelerated money printing, has already exceeded 6%. A record of more than 30 years.

But it is not only external factors that affect the exchange rate: the high growth in Israel, even after the very optimistic forecast for it was slightly damaged due to data released by the CBS indicating lower-than-expected growth in October, the fact that almost every day a new "unicorn" is born here. (Compared to the peak days of the corona, of course) the debt-to-GDP ratio and relatively moderate inflation - we have already said, strengthened the shekel against most currencies in the world, including the dollar. In the

past, the Bank of Israel used to intervene However, the Bank of Israel has also realized that no central bank, no matter how strong, can really withstand market forces.

New York: Those who flew to it in the winter of 2001, paid close to NIS 5 to the dollar, which is now traded at a rate of only NIS 3 (Photo: Giphy, IDF Spokesman)

How does this affect us?

If there are those who shrink in their chairs with worry every time the dollar erodes against the shekel, then the exporters have asked. Big they pay their production costs, here in Israel, NIS, but receive compensation in foreign currency, mostly in US dollars (North America is the main export destination of Israeli industry).

If the high-tech industry profit margin is huge, so even those who pay salaries shekels and selling the products or services in dollars, would be able to absorb the deterioration (him) the exchange rate, the more traditional industries, the erosion in the value of the dollar could lead to a dramatic decision of moving the plant into Israel or even closure.

even this figure is unambiguous: even for an Israeli plant, part of the cost Production is in dollars: Although wages, electricity, water and property taxes are paid in strong shekels, some of the raw materials are purchased overseas in dollars.

And yet, despite this reservation, there is real cause for concern regarding the future of traditional industry in Israel due to the weakness of the dollar.

But this coin has another side - not just a metaphor: Who would spend a vacation in Europe or the United States, will benefit from a very strong shekel in his pocket and buys familiar with now, for the same amount of Shekels, a lot more dollars or euros.

Back to memories: remember that we raised invoked in early 2002 , Somewhere almost 20 years ago, when the dollar was arms at an exchange rate of 5 shekels?

Suppose you decided to convert 10,000 shekels to a dollar for a flight to the United States. The consideration for them was exactly $ 2,000.

For those 10,000 shekels, you will receive $ 3,268 today (as of the rate known at the time of writing). That is - a net profit for flying abroad.

It should be noted that this calculation is a bit simplistic, since even the prices in the United States, for example, did not remain the same as they were 20 years ago. The price of most products has risen even more than the rate of price increase in Israel. And yet, even if our theoretical fantastic profit erodes a bit on the way to the box office, it will still buy us more. much more.

Assuming most of us do not fly abroad soon - if only because of the Corona's limitations, there is another area where we were supposed to earn, at least on paper, from a low dollar rate: a large portion of our consumer products are imported from abroad: perhaps most products in the refrigerator are blue- White, but among those in the pantry you will already find quite a few import brands: cookies, pastas, ketchup and mayonnaise for example (not all of them of course, there are popular Israeli brands in this field as well).

And if you leave the kitchen for a moment and move to the bathroom, you will find that almost all the products there: shampoo, soap, shaving foam, razors, deodorant toothpaste and perfumes, are foreign-made, that is - purchased from the manufacturer by those who import them to Israel in dollars or euros.

The same is true of the closet where the cleaning materials are stored - and if in the closets you can still arouse love and respect and affection and envy for the products of the country (in the words of Natan Alterman), then in the parking lot under the house, you will not find Israeli products at all, unless you have an eccentric neighbor 70.

All of these products were supposed to be significantly cheaper than they were a few years or a few months ago. The fact that this is not exactly the case is because importers, who know how to charge us every time a given equation changes to their detriment (how much have you heard about the shortage of components in the automotive industry, the rising price of raw materials and the insane jump in transportation prices?) In shekels.

Of course they tell us about the cover, that erosion emphasis on dollar currency barely managed to offset the increase in their expenses and more. You can decide how much you believe in it.

If we try to pack all the dollars rolling along this knowledge Bottom line, we agree that for most citizens Israel, the strong shekel is not only a reason for national pride, but also for a slightly more apple pocket. All citizens, in the form of a heavier tax burden to support those who have lost their source of livelihood.In

other words: wait for the dollar to fall below three shekels - if only for curiosity, then pick up a worried phone call to your neighbor working in the factory to ask what you can help.

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