In recent weeks, Israel’s monetary system has been undergoing a shake-up that goes beyond routine fluctuations. While the US dollar is exhibiting global weakness and losing ground against most of the world’s major currencies, the Israeli shekel is not merely joining the trend — it is leading it with an intensity that leaves other currencies in the dust.

The world’s major currencies have strengthened by an average of about 2 percent against the dollar so far this month alone. The shekel has surged at double that rate, and has, for the first time in 31 years, crossed below the threshold of three shekels to the dollar. Over the past year, the dollar has fallen by a staggering 18.83 percent against the shekel — from 3.691 to 2.996.

There are various reasons for the surge: a combination of a sharp decline in Israel’s risk premium against the backdrop of regional developments, including ceasefires with Iran and Lebanon; significant capital inflows resulting from technological and security successes; interest rate differentials that remain high; and gains on the New York Stock Exchange, which also affect the local currency.

All of these factors have made the shekel particularly strong. However, what may be perceived as a badge of honor for the Israeli economy is rapidly becoming a heavy burden on its growth engines.

An overly strong shekel is a ticking time bomb for exporters and high-tech companies. These companies sell their services and products in dollars, but pay salaries and operational expenses in shekels. When the dollar weakens, exporters receive fewer shekels for the same product, yet are required to pay the same expenses in shekels.

The appreciation in the value of the shekel cuts into profit margins. When the shekel strengthens by 5% within two weeks, it means a dramatic drop in revenues in shekels. Sometimes, just a few percentage points are the difference between a profitable business and one that falls into losses. This is a........

© The Times of Israel