Chapter

ISRAEL

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: September 21, 1993.
Exchange Arrangement
CurrencyThe currency of Israel is the Israeli new sheqel.
Exchange rate structureUnitary.
Classification
Crawling bandThe exchange rate of the new sheqel is managed with regard to a basket of currencies comprising the dollar, the euro, the pound sterling, and the yen. The market exchange rate fluctuates within a crawling band in response to market forces. The upper and lower limits of the band have been adjusted daily, reflecting the annual difference between the domestic inflation target and the projected inflation of the main trading partners. The adjustment of the upper (depreciated) band has been 6% on an annual basis since July 26, 1993; the adjustment of the lower (appreciated) band has been 2% on an annual basis since August 6, 1998. On December 31, 1999, the width of the band was 44.5% (upper limit over lower limit) and the margin from a virtual midpoint was ±18.23%.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketYes.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo.
Payment arrangementsNo.
Administration of controlExchange control is the responsibility of the Controller of Foreign Exchange; it is administered by the Bank of Israel (BOI) in cooperation with other government agencies.
International security restrictionsNo.
Payment arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedEffective January 1, 1999, banks are required to classify the accounts of residents of areas under autonomous Palestinian administration as a separate group and to report on the basis of the same principles as applied to nonresident accounts.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedAccount holders may freely effect transfers from their foreign currency account and may also convert funds held in the account into local currency at the market exchange rate. There are no restrictions on the opening of convertible local currency accounts by nonresidents and on transfers made thereof.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measuresWith the exception of agricultural products, imports are free of quantitative restrictions. A special regime applies to imports from countries that restrict or prohibit imports from Israel.
Import taxes and/or tariffsNo.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesMost exports do not require licenses. Exports of oil and certain defense equipment require licensing.
Without quotasYes.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital and money market instrumentsThe Foreign Exchange Control Regulations prescribed direct reporting to the Controller of Foreign Exchange of outward portfolio investments and for offerings abroad by Israeli corporations for amounts above $0.5 million. Effective April 15, 1999, this threshold was raised to $5 million. On the same date, individuals and nonprofit organizations were required to report to the Controller of Foreign Exchange all outward portfolio investments above $0.5 million. On February 3, 2000, this threshold was raised to $5 million.
On capital market securities
Shares or other securities of a participating nature
Sale or issue locally by nonresidentsProceeds may be freely transferred.
Purchase abroad by residentsHouseholds may freely purchase securities abroad. Provident funds may make direct portfolio investments abroad of up to 5% of their assets. Pension funds and insurance companies may only purchase abroad securities issued by the Israeli government and Israeli corporations.
Bonds or other debt securities
Purchase abroad by residentsThe same regulations apply as for shares or other securities of a participating nature.
On money market instruments
Purchase abroad by residentsThe same regulations apply as for shares or other securities of a participating nature.
On collective investment securities
Purchase abroad by residentsThe same regulations apply as for shares or other securities of a participating nature.
Controls on derivatives and other instrumentsA resident may not undertake with a nonresident derivatives transactions of any kind in which one of the underlying assets is local currency and that involve payment or receipt in foreign currency, unless the transaction is at a predetermined price and for a maximum period of 30 days.
Purchase locally by nonresidentsYes.
Sale or issue locally by nonresidentsAll activities and transactions in foreign currency between Israeli residents and nonresidents are permitted, except for a shortlist of controls on institutional investors and on several transactions in derivatives made with nonresidents.
Purchase abroad by residentsThe same regulations apply as for shares or other securities of a participating nature.
Controls on credit operationsNo.
Controls on direct investment
Outward direct investmentProvident funds may make direct and portfolio investments abroad of up to 5% of their assets. Pension funds are not allowed to make any direct investments abroad. The Foreign Exchange Regulations required direct reporting to the Controller of Foreign Exchange of outward direct investments made by corporations above $0.5 million. Effective April 15, 1999, this threshold was raised to $5 million. On the same date, individuals and nonprofit organizations were required to report outward direct investments above $0.5 million. Effective February 3, 2000, this threshold was raised to $5 million. On the same date, new immigrants and Israeli citizens returning to Israel after having resided abroad for seven years or more were exempt from direct reporting for a three-year period.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase abroad by residentsIndividuals are permitted to invest abroad freely in land and in real estate. Provident funds may invest in real estate abroad up to 5% of their assets, while pension funds are not allowed to invest abroad.
Controls on personal capital movementsNo.
Provisions specific to commercial banks and other credit institutions
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsAll foreign currency accounts are subject to additional secondary reserve ratios, half of which must be deposited with the BOI in an interest-generating account.
Differential treatment of deposit accounts held by nonresidents
Reserve requirementsThe same reserve ratios apply to bank accounts held by both residents and nonresidents. Reserve requirements against resident foreign currency accounts are denominated in local currency, whereas reserve requirements against nonresident foreign currency accounts are denominated in foreign currency.
Provisions specific to institutional investors
Limits (max.) on securities issued by nonresidents and on portfolio invested abroadYes.
Limits (max.) on portfolio invested abroadThe limit on direct and portfolio investment abroad by provident funds is 5% of their assets. Pension funds and insurance companies are not allowed to invest abroad, except in securities issued by the Israeli government and Israeli corporations.
Other controls imposed by securities lawsNo.
Changes During 1999
Resident accountsJanuary 1. Banks are required to classify and report the accounts of residents of areas under autonomous Palestinian administration as a separate group.
Capital transactionsApril 15. The threshold for direct reporting to the Controller of Foreign Exchange of outward direct and portfolio investments made by corporations, as well as for offerings abroad by Israeli corporations, was raised to $5 million. Individuals and nonprofit organizations were required to report directly to the Controller of Foreign Exchange all outward direct and portfolio investments above a threshold of $0.5 million.
Controls on direct investmentApril 15. The threshold for direct reporting to the Controller of Foreign Exchange of outward direct investments made by corporations was raised to $5 million from $0.5 million. Individuals and nonprofit organizations were required to report directly to the Controller of Foreign Exchange all outward direct investments above a threshold of $0.5 million.
Changes During 2000
Capital transactions
Controls on direct investmentFebruary 3. The threshold for direct reporting on investments abroad by individuals and nonprofit organizations was raised from $0.5 million to $5 million. New immigrants and Israeli citizens returning to Israel after having resided abroad for seven years or more were exempt from direct reporting for a three-year period.

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