Israeli currency devaluation wipes out `millionaires'
Thousands of Israelis awakened yesterday morning to find that they were no longer millionaires. Not that being a millionaire in Israel had quite the same status that it does in the United States. At an official exchange rate of 1,503 Israeli shekels to the US dollar, any Israeli with $665.07 -- about a month's salary for a professional here -- was a shekel millionaire.
Armored cars arriving Wednesday morning at the Bank of Israel, to pick up their daily allotment of shekels for distribution to banks across the nation, were filled with $20 billion worth of the new shekel. This is the second new currency to be introduced in this inflation-riddled economy in five years.
The new shekel looks a lot like the old shekel -- the biggest difference being that one new shekel is worth 1,000 of the old shekels. A dollar now buys 11/2 new shekels at the official rate.
The switch is supposed to make life easier for Israelis who have been dealing with mind-boggling figures to pay their rents and grocery and telephone bills.
It also is designed to help businesses and the government, whose computers literally could not handle the super-inflated old shekel, says Shaul Peled, director of the central bank's currency department.
``When we were discussing the national budget, we needed a special dictionary to find a word to describe figures with 12 or 14 zeros,'' Mr. Peled jokes.
Peled and other Israeli officials, however, remain anything but lighthearted about the nation's still-shaky economy. The removal of three zeroes from the shekel was purely a technical matter, Peled stressed, made necessary by the more than 400 percent devaluation of the old shekel since its introduction in February 1980.
Officials expect the change from old to new shekel to have no impact on the economic austerity program imposed here in July. They have stressed repeatedly that the currency change is unrelated to their efforts to hold back spending and reduce Israel's staggering budget and trade deficits.
But there is a danger, Peled acknowledged, that the new shekel will go the way of the old if the government's efforts to restore the economy fail. When it was introduced in 1980, the old shekel was pegged at a rate of 131/2 to the dollar.
``We hope and we pray that the [devaluation] won't happen again,'' Peled said.
What probably will happen, at least initially, is a great deal of confusion on the part of a public that merchants and money lenders say sometimes still think in terms of the Israeli lire, which the old shekel replaced.
``Seventy percent of my customers, both Arabs and Jews, still talk in terms of the lire,'' said Nabil Feidy, a money-changer in East Jerusalem. ``There will be so much confusion for them with this new money. I will have headaches for three months.''
To combat the confusion, the government last week launched a mass-media campaign to explain the new shekel. The state-run television is broadcasting public-service announcements. A picture of the old 10,000 shekel note that features former Prime Minister Golda Meir is shown on the screen. Before the viewer's eyes, three zeroes fade away from the 10,000, leaving the new 10-shekel note.
The Bank of Israel has also purchased large advertisements in the nation's major newspapers, showing pictures of the new and old shekels and listing answers to common questions about the switch.
Under the law passed Tuesday by the Knesset, Israel's parliament, old shekels will circulate alongside the new shekels during a one-year transitional period. Prices will still be listed in old shekels and can also be listed in new shekels. Checks will also be written in old shekels.
``In five years, they have changed the money three times,'' said Mr. Feidy. ``After all, it probably doesn't matter. I will still deal mostly in Jordanian dinars and American dollars because people still will not trust the shekel.''