Why Israel is selling $30 billion in foreign currency?

Israel has announced to selling of up to $30 billion of foreign currency in the open market to stabilize its own currency ‘Shekel’. This is the first-ever sale of foreign exchange.

The Bank of Israel has taken the decision on Monday as the government is feeling the brunt of the ongoing war with Hamas. Owing to this unrest, Shekel had dropped sharply against the U.S. dollar.   

The rising inflation and local political unrest were also instrumentals to push the bank to sale of foreign currency.

On Monday, shekel weakened by over 1.6 percent against the U.S. dollar. The Israeli currency is seeing this volatility for the first time since 2016.

The central bank also announced that apart from selling $30 billion forex, it will also provide up to $15 billion liquidity to markets through a swap mechanism.  

Israel’s Central Bank Intervention

The Bank is also to take the market in its control against letting the free-float mechanism play. In the coming days, the bank will actively play its role in controlling this volatility.  It will provide liquidity to markets in Israel to continue their proper functioning. This will be provided through Swap—a derivative contract in which one party swaps the cash flows or value of one asset for another.

The Bank would continue monitoring developments, tracking all the markets, and acting with the tools available to it as necessary, it said. Notably, the last time the bank intervened was in January 2022.

During 2023, the shekel has shed 10 percent of its value against the greenback, largely due to a bid by the Israel government to overhaul the judiciary.

On Sunday, the Israeli stock and bonk price were under pressure and slid by 7 percent. The foreign exchange with Israel is over $200 billion.

Fighting in Israel and Gaza continued into a third day on Monday with authorities reporting the deaths of at least 560 Palestinians.