Israel has just been through almost three years of continuous war on several fronts. Tens of thousands of reservists have spent hundreds of days out of work, fighting Israel’s enemies – not to mention entire parts of the country (especially the Galilee and Golan) economically paralyzed due to incessant rocket fire. And yet… amazingly, the shekel has been strengthening mightily against the dollar that’s now at its lowest level since the 1990s vis-à-vis the shekel (well under three shekels to the dollar). Is this another miracle from the Holy Land or something else entirely?

No miracle here, just two basic economic phenomena: one short-to-medium term, the other long-term. The former is something for Israel to be proud of; the latter, for America to hang its head in (economic) shame.

Despite Israel’s large outlays on the battlefield, somewhat paradoxically the country’s prowess there (separate from diplomatic failures) has hugely boosted its arms industry. Israeli military exports have skyrocketed, with a backlog of orders from around the world that will keep its high-tech (war) factories humming for many years to come.

Such an export wave, of course, strengthens the shekel vis-à-vis the dollar, with waves of dollars (the international currency for trade payments) entering the country. Global tech investment, multibillion dollar defense contracts, as well as natural gas export deals all involve foreign currency entering Israel, most of which has to be converted to shekels (to pay salaries, taxes etc.), thereby increasing its value compared to the........

© The Times of Israel (Blogs)