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By Adam Abrams/JNS.org
The German financial services giant Deutsche Bank last week ranked the Israeli shekel as the worldโs second-strongest currency, bolstering the broader outlook on the Jewish stateโs economy.
โThe strength of the shekel reflects the strength of Israelโs current economic position,โ Leo Leiderman โ a professor of comparative economics at Tel Aviv University and the chief economic adviser for Bank Hapoalim, Israelโs largest bankโtold JNS.org, adding that he expects the shekel โto continue showing relative strength.โ
During the past year, the shekel has appreciated 6.1 percent against the currencies of Israelโs main trading partners, including the U.S. dollar, British pound, euro and yen, according to Deutsche Bankโs strategic foreign currency analyst Dr. Gautam Kalani. Only the Chinese yuan is stronger than the shekel, Deutsche Bank said.
The shekelโs strength results partially from Israel holding one of the largest reserves of foreign currency in the world, serving to reduce the volatility of the Jewish stateโs native currency.
Israelโs central bank, the Bank of Israel, announced record-breaking foreign reserve holdings of $111 billion at the end of September. In April, a report by Bank of America Merrill Lynch noted that the Bank of Israel was โdefying gravityโ by checking the appreciation of the shekel against the U.S. dollar, which hit a three-year low against the Israeli currency this summer.
Imports and exports
Leiderman explained that Israel โexhibits a surplus in the current account of the balance of paymentsโthat is, excess of exports of goods and services over imports of these. Obviously, a strong currency means more challenges for our exporters, and some easing of prices for imported goods and services.โ
Yet despite the challenges that the shekelโs strength might pose for local manufacturers and exporters, Israelโs exports actually rose 6 percent โ to $50 billion โ during the first half of 2017, according to the Israel Export and International Cooperation Institute.
Leiderman said the jump in exports was driven by rapid growth in high-tech services and incoming tourism.
โThe economy benefits from capital inflows from abroad, especially in the high-tech sector. This year, we expect a total of 3.5 million incoming tourists, which is a record-high figure in Israelโs history,โ he said.
Israeli exports of services totaled $21 billion in the first half of this year, boosted by the rising trend in exports of computer and software services โ which grew 12 percent, to $6.8 billion.
Exports of tourist services were up 16 percent, to $3.2 billion, in the same period, and exports in industrial sections โ including drugs, chemicals, refined oil products and electronic components โ grew 5 percent.
โIncreasing exports is a strategic goal of the Ministry of the Economy and Industry, because the export industries feature high productivity,โ Israeli Economy Minister Eli Cohen said in August, Globes reported. โWe are continuing our efforts to attract international companies. With the help of incentives for exporters, we will cross the $100 billion mark, which is our annual export target.โ
A top economic competitor
Besides being recognised for its strong local currency, Israel is also considered home to one of the worldโs most competitive, innovative and stable economies.
โWhen looking at the OECD (Organisation for Economic Co-operation and Development) countries, we are towards the top of the list, almost at the head, and this is very important,โ Israeli Prime Minister Benjamin Netanyahu said in February. โThis creates jobs, raises wages and is good for the citizens of Israel.โ
The Jewish state is currently ranked first in the world in research and development (R&D) and venture capital investments as a percentage of gross domestic product, as more than 600 new start-up companies are launched in the country every year. Israel is also home to more than 300 R&D centers belonging to tech giants such as Facebook, Microsoft, Intel, Google, IBM and Apple.
Israel is ranked second on the World Economic Forumโs (WEF) innovation index and 16th on its Global Competitiveness Report. Israel moved up eight positions from last year on the WEF competitiveness index, marking the first time that the country was ranked among the listโs top 20 nations.
According to the WEF, Israel this year maintained its position as one of the worldโs three most innovative countries, in line with Jewish stateโs longstanding reputation as the โstart-up nation.โ
Israel also cracked the top 10 on the 2017 Bloomberg Innovation Index, which rates the level of innovation in a nationโs economy by measuring its spending on R&D as well as its number of publicly traded high-tech companies.