The Bank of Israel is the central bank of the State of Israel. The Bank was established in 1954. It is situated in Kiryat Ben Gurion in Jerusalem, close to the Knesset (Israel's parliament), the Supreme Court, and government ministries. The Bank has a branch in Tel Aviv (on Lillienblum Street), and there is also an extension of the Banking Supervision Department in Tel Aviv (on Yavneh Street).

The Bank is independent, and its objectives and operating methods are specified in the Bank of Israel Law, 5770-2010. Its objectives are to maintain price stability, to support the Government's objectives especially growth and employment, and to support the stability of the financial system.

The Bank acts to increase public awareness of its activities and the areas of its responsibility. It does so by means of its publications, press releases, etc. In addition, there is a Visitors Center in the Bank's premises in Jerusalem, with an exhibition showing the development of money and the issue of money, and with films, lectures and games explaining the main functions of the Bank.

History

The history of the Bank of Israel is interwoven with the history of the state. The question of creating a central bank, or as it was called, the State Bank, was discussed in the Ministry of Finance in 1948, immediately after the establishment of the State of Israel. The matter was shelved due to the pressure of events, but an immediate solution was required to the problem of issuing a currency for the young State. Thus the Bank Notes Ordinance, 5708-1948 was introduced, becoming effective on August 17, 1948. The ordinance defined the authority to issue banknotes in a charter between the government and the Anglo-Palestine Bank, later Bank Leumi Le-Israel B.M. Under the terms of the charter, the Anglo-Palestine Bank set up a special department, the Issue Department, whose task was to issue banknotes. At the same time, the Bank also formed a department to manage State loans.

The process of replacing the notes of the Israel Currency Council with those of the Anglo-Palestine Bank began immediately after the Bank Notes Ordinance went into effect and the charter was signed, and was completed by the end of October 1948.

The other functions for which a central bank is usually responsible-monetary policy, banking supervision, etc.-were at that time the responsibility of the Ministry of Finance.

In March 1951 the Minister of Finance, Eliezer Kaplan, appointed the Committee for the Establishment of a State Bank. The committee, which he headed, submitted its findings in September 1952. These consisted of general recommendations in two areas -the organization of the bank, and the relationship between the bank and the government. The report provided the basis for the preparation of the Bank of Israel Law, which was coordinated by the first Director-General of the Ministry of Finance, David Horowitz, subsequently the first Governor of the Bank of Israel. The major issues dealt with were defining the relationship between the central bank and the government, and guaranteeing the Bank's independence.

The Bank of Israel Law, 5714-1954 was passed by the Knesset on August 24th, 1954, and became effective on December 1 of the same year. On that date the Bank of Israel was officially established. The Law replaced the Bank Notes Ordinance of 1948 and other legislation introduced by the Provisional Council of State, which had hitherto regulated the subjects which became the responsibility of the central bank.

Once established, the Bank of Israel took over the Issue Department of Bank Leumi Le-lsrael B.M. and the Banking Supervision Department of the Minister of Finance. Foreign exchange control was transferred to the Bank of Israel in 1978.

Objectives and Functions

The main objectives of the Bank are listed and prioritized in the Law: To maintain price stability; to support other objectives of the Government's economic policy, especially growth, employment, and reducing social gaps and supporting the stability of the financial system.

1. "To maintain price stability as its central goal".
   
   The main function of the Bank of Israel is to maintain price stability, i.e., to preserve the currency's purchasing power. Monetary policy is primarily directed towards attaining this objective, the achievement of which is essential for growth and economic stability. As is the case in many advanced economies, the main tool of monetary policy is its effect on the price of money, i.e., the interest rate.
   
   
2. "The Government, in consultation with the Governor, shall determine the price-stability range."
   
   The range of price stability is defined as the target rate of annual inflation, currently 1–3 percent. The decision on the short-term interest rate required to meet the inflation target set by the government is the responsibility of the Bank of Israel, the Bank of Israel Law grants the Bank autonomy with regard to that decision.
   
   
3. "To support other objectives of the Government's economic policy, especially growth, employment and reducing social gaps, provided that, in the Committee's opinion, this support shall not prejudice the attainment of Price Stability over the Course of Time".
   
   For this purpose, "Price Stability over the Course of Time" means a situation in which the Committee, on the basis of the monetary policy that it has established, expects the inflation rate to be within the price-stability range determined per Subsection within no more than two years".
   
   The Bank of Israel operates a flexible inflation targeting policy that allows temporary deviations from the target, but is designed to ensure that inflation returns to within the target range within two years at most.
   
   
4. "To support the stability and orderly activity of the financial System."
   
   The Bank of Israel, similar to most central banks around the world, plays a major role in maintaining the stability of the financial system. A stable financial sector is important per se, and also for the efficient management of monetary policy.
   
   Since the establishment of the Bank of Israel in 1954, it has been responsible for the stability of the banking system. The new Bank of Israel Law gives the Bank the responsibility for supporting the stability of the whole financial system, including the authority to undertake monetary actions vis-à-vis non bank financial institutions as well. This is appropriate to the current economic reality, particularly following the global financial crisis.

Vision Values and Objectives in coming years

To be among the most advanced central banks and to contribute to the prosperity of Israel and the welfare of its citizens.

The Bank’s Values:

• Professionalism - We aspire to be at the forefront of professional knowledge in all relevant areas. This is part of the aspiration to personal excellence and a way of thinking that is original, independent, non conventional and path breaking.
  
• National welfare - The basic criterion of the Bank’s activity is the maximization of benefit to the State and its citizens over time. This activity includes maintaining the rule of law, the country’s sovereignty and its values.
  
• Integrity - We aspire to honesty and credibility while remaining faithful to our principles, values and professional truth, without introducing foreign considerations and personal interests.
  
• Partnership - Cooperation, sharing of information and exchange of ideas between all the components of the organization workers, managers, customers and suppliers in order to achieve the Bank’s goals.
  
• Fairness and respect for the individual - A commitment to an organizational outlook that promotes a focused and consistent attitude towards the Bank’s workers, based on the recognition of an individual’s worth. Promotion of an organizational culture that encourages commitment, trust and mutual respect.

The Bank’s objectives in coming years:

• Implementation of the new Bank of Israel Law.
  
• Initiating reforms in the financial system (including the banking system) and in the capital market.
  
• Development of macro prudential policy and tools to reinforce the economy’s financial stability.
  
• Strengthening the Governor’s role as economic advisory to the government.
  
• Development of the Bank’s human capital, recruitment and retention of highly skilled manpower.
  
• Upgrading of the information and statistics system.
  
• Development of advanced technological infrastructures.
  
• Issuing a new currency series.

​In March 2010 the Knesset passed a new Bank of Israel Law, which became effective on June 1, 2010.

The Law states that the Bank's main objective is to maintain price stability. The autonomy of the Bank of Israel derives from the Law, and is expressed in the Bank's freedom in choosing its actions and in exercising its powers. Monetary policy and decisions on actions required to achieve the Bank's objectives are determined by a Monetary Committee, and mechanisms have been established for public and internal control to ensure that the Bank's autonomy is accompanied by accountability and transparency with regard to the executive branch, the legislature and the public. A Supervisory Council has been established, whose duties are to supervise the orderly and efficient management of the Bank.

Useful links

Currency of Israel:

Israeli shekel

List of Central Banks:

Central Banks

Official website of Bank of Israel:

www.bankisrael.gov.il

Israel’s foreign currency market:

www.boi.org.il

Israel Ministry of Finance:

www.financeisrael.mof.gov.il