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Time bomb ticks in the Bank of Israel

At a time when the entire world is wary of the American economy and countries spend their foreign currency reserves to boost domestic production, the Bank of Israel has beefed up its reserves to over $50 billion. This is the largest-ever amount in Israeli history, and places Israel in the top ten among nations with the highest per-capita dollar reserves.

The Bank of Israel’s attempts to pump liquidity into the markets did not prevent the credit crunch. Banks don’t lend because they are afraid of economic risks, rather than because they lack resources.

The reserves leave Israel vulnerable to staggering losses. A drop in the shekel-to-dollar rate to 3.23.4 would cost the treasury about 40 billion shekels as the dollar reserves become less valuable.

The Bank of Israel’s policy of buying up dollars is good for exporters, but they cannot export anyway because of the foreign-market situation. At the same time, it increases the cost of imports and suffocates the domestic market.

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