Commencing January 1, 1998, Israeli residents will be able to purchase foreign currency for shekels, for the purpose of making deposits in foreign currency accounts in Israeli banks. This is in addition to the $7,000 foreign currency allocation allowed for the purpose of foreign travel. Israeli residents will accordingly be able, henceforth, to hold foreign currency assets, and not merely foreign currency-linked assets, in banks.
Bank of Israel announced today (Sunday), a series of foreign currency control concessions due to go into effect immediately, along with changes in liquidity provisions, a further stage in the foreign currency liberalisation process and in the deregulation of the banking system. These steps were already announced by the then Minister of Finance Dan Meridor, and Governor of the Bank of Israel Dr. Yaakov Frenkel, at the Caesarea Conference in mid-June.
The Bank of Israel emphasises that the new steps were designed to make it easier for the banks and the general public to manage their asset and liability portfolios, allowing greater flexibility in exchange rate risk management. It further emphasises that these measures heighten market exposure to other countries in the financial sphere, thus contributing to the streamlining and competitiveness of the Israeli money and capital markets.
Also lifted, further to the present concessions, was the restriction on investment by Israeli companies in foreign securities. Hitherto, an Israeli company was permitted to maintain a holding in a foreign security up to a ceiling of 15% of the company’s sales turnover or up to 25% of its equity, whichever was the higher.
Also removed were all restrictions hitherto applying to Israeli residents for the purpose of implementing shekel-foreign currency future transactions. These changes will enable exporters, importers, households and other financial bodies, to reduce exchange rate ```risks. Hitherto, Israeli residents had been allowed to purchase foreign currency in advance for the purpose of transactions or to purchase foreign currency for the purpose of future transactions, subject to restrictions as to the type of transaction, the duration and the use of the currency purchased.
Bank of Israel also announced that the banks’ foreign currency exposure limit has been lifted. This step will enable the banks from now on to manage their foreign currency assets and liabilities in accordance with business considerations and unrestrictedly. An exception to the rule will be restrictions imposed by the Examiner of Banks with an eye to stability. Hitherto, banks were permitted an excess of foreign currency liabilities over assets proportionate to the shareholders’ equity volume of each bank.