The IsraTransfer Report: June 2021

From the IsraTransfer Trading Desk


shekel

Since our last newsletter, Israel has finally got a new government. The markets perceive this as a positive sign for Israel and the shekel. The lack of a government was considered a sign of instability, so it's no surprise that the shekel's been strengthening against all major currencies.


The new Delta variant of Covid is getting in the way of the UK and Israel opening up to tourists. It has pushed back the UK's planned complete easing of lockdown. It's unclear how Israel will respond down the line, but for now, it moved the reopening date from July 1 to August 1. The market is still unsure how to react to pressure on the tourist industries worldwide.


As a result, we see the US dollar/shekel at the 3.26 level, sterling down against the shekel at 4.53, and the euro hovering around 3.88.


In with the New: Israel's 36th Government


israel government

The big news this month is the announcement that Israel finally succeeded in forming a new government. While the controversial "change government" has come under attack from different sectors, some economists are pretty excited. Yemina's Naftali Bennett, set to rotate his premier position with Yesh Atid's Yair Lapid, is Israel's first entrepreneur-Prime Minister. He founded, ran and invested in start-ups and possesses a deep understanding of the tech sector. Some economists believe his experience grants him a unique ability to lead Israel to greater economic prosperity.


Avigdor Liberman's image is somewhat clouded by corruption charges. But that doesn't stop economists from having high hopes for him as Finance Minister. Citing his "strong-willed" personality, they believe he may be able to bulldoze his policies through the many interest groups with competing agendas. Liberman plans to invest heavily in infrastructure projects, decrease bureaucracy and regulation, and reach a long-term arrangement to rein in the power of the Histadrut labor union."


Of course, this new government will face many challenges of passing a budget and bringing Israel's economy back to a pre-covid level. The current government consists of eight parties, many with vastly different viewpoints. Getting them all to agree on dividing up a budget will be quite the task.


Economists in Israel and at the OECD recommend a "recovery" policy for a post-corona world. So, build now, pay later. They refer to an economic policy that allows for economic growth, followed by cuts in the future. "Once the recovery is solidly entrenched...the governments will have to begin cutting down the massive budget deficits they have accumulated." The problem is, the new coalition is a product of heavy bargaining. Parties want to spend on projects totaling tens of billions of shekels. Once the budget cuts begin, many coalition members will have to make concessions.


When it comes to unemployment, figures are dropping, but there are still 400,000 Israelis without employment. We are bouncing back, but slowly, and still have a way to go to reach the pre-covid 3.4% unemployment rate. More Israeli's will likely rejoin the workforce starting July 1 when the government-sponsored economic safety net package runs out. It is still unclear what will happen after this date and who will continue to get unemployment benefits.


Tourism Trials Continue


israel tourism

Everyone is waiting anxiously for tourists to come back. But how quickly will we return to normal? It seems like the wait is longer than expected.


The Israeli economy is highly dependent on tourism. It will be hard to get unemployment rates down to pre-pandemic levels without opening the border. The proposed date for reopening to individual tourists was July 1, 2021, but it has been postponed by a month. In the meantime, covid-19 is on the rise. The Delta strain, which came to Israel via travelers, is 50% more contagious than other variants.


There were issues enforcing measures to keep new strains out. Arrivals to Ben Gurion were not undergoing proper screening, and many “didn’t keep quarantine instructions. Maj.-Gen. Roni Numa was appointed as the coronavirus airport commissioner to deal with the problem going forward.


In the meantime, groups of tourists and a limited number of individuals can enter the country if they follow strict guidelines. They must be vaccinated and tested both upon departure and arrival. Health Ministry releases a document warning all passengers that if anyone on their plane is diagnosed with the Delta variant of COVID-19, everyone on board must go into quarantine. This includes people who were vaccinated.


For individual travelers seeking to reunite with their families in Israel, the process is far from straightforward. To obtain permission to enter the country, each prospective traveler must be approved by the Ministry of Interior. This process can take weeks, and frequently, the approval never comes.


Recently, former MK Dov Lipman started an organization called Yad L'Olim to help immigrants navigate Israeli bureaucracy and deal with other issues. Lipman and members of the organization post updates on its Facebook page regarding ever-changing travel policies and assist prospective travelers via a community Facebook group called "Reunite Olim with Their Families". On June 27, the organization posted an update that families traveling with children under age six are no longer permitted to travel to Israel with their vaccinated parents.


Financial Q & A with Olim Advisors

financial aliyah

Earlier this month, IsraTransfer hosted a webinar with Rafi Shulman from Olim Advisors. We answered frequently asked questions about saving money when making aliyah, managing finances in Israel, where to find the best deals and more! Don't worry if you missed it, check it out here.


Are Shekels Going Digital?


digitla shekel

With currencies going digital, the shekel refuses to be left behind! Central banks across the globe are considering a new kind of digital currency that is backed by the banks. Cryptocurrencies like Bitcoin and Ethereum are decentralized, private, and free of bank regulations. On the other hand, CBDCs, or Central Bank Digital currencies, will be regulated by their country and backed up by its monetary reserves. It aims to marry the convenience and security of cryptocurrencies with regulated, traditional banking.


This month, Bank of Israel Deputy Governor Andrew Abir noted that Israel ran a digital shekel cryptocurrency pilot test. The concept has been on the table since 2017. Israel decided to "accelerate its research and preparation for the potential issuance'' due to emerging global trends.


While no major central banks have issued a digital currency yet, they are in the process of exploring it more deeply than before.


Once launced, the digital currency will go from the central bank to the payment provider services. It will differ from traditional money in that the payment providers will not be able to use the money for any other purpose, such as lending, charging interest, etc. They will not replace the banks. A digital shekel would have many advantages including being able to withstand emergencies (by operating internet-free), allow for efficient global payments, provide increased privacy, help the government fight the black market, and more.

But don't get too excited. Although Abir believes that the likelihood of Israel rolling out a digital shekel has increased, there is still only a 50% chance it will happen in the next five years.

Stay on top of daily trading in the shekel, plus notable news, economic announcements, and more with IsraTransfer’s free Daily Shekel Report newsletter.


In case you missed it...


Israeli gymnast Linoy Ashram wins big at the European Championships!

Israel scored another athletic win this month when 22-year-old Linoy Ashram took top prizes in the European Championships in Varna, Bulgaria. For the first time since 2011, a non-Russian gymnast had won a gold in the individual apparatus events. Read the full story here.

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