Ministry of Finance
Spokesman and External Relations
11 August, 1997

Additional Relaxation of Foreign-Exchange Controls

  • Israeli residents will be permitted to purchase foreign currency with local currency and deposit it in foreign-currency deposits in Israeli banks. At present only foreign currency that originates from overseas or has been received as a foreign-currency loan can be placed in a deposit of this kind.
  • Residents will be permitted to transfer money between foreign-currency deposits (from one unrestricted foreign-currency deposit [Pamah] to another).
  • Both residents and nonresidents traveling abroad will be permitted to purchase $ 1,000 on leaving the country without having to produce documents or personal identification.
  • Residents living abroad will be permitted to open bank accounts there.
  • The upper limit on Israeli companies' investment in foreign securities will be abolished. Currently an Israeli company may invest up to 15 percent of its sales turnover or 25 percent of its equity in these securities.
  • All restrictions on mutual (trust) funds' investments in foreign securities will be abolished. Currently these funds may invest up to 50 percent of their asset value.
  • Nonresidents will be permitted to convert local currency deposited in the Bank of Israel into foreign currency. To date, the right to convert NIS into foreign currency was limited to money originating from a previous foreign-currency conversion.
  • Israeli banks will be permitted to purchase local currency from banks abroad against foreign currency; this will make the sheqel more marketable and convertible in world markets.

At the initiative of the Prime Minister, Binyamin Netanyahu, on 13th August 1997 the cabinet decided on a further liberalization and relaxation of foreign-exchange controls, as part of the budgetary and structural reform decisions for 1998.

Further to the Prime Minister's announcement that in connection with Israel's 50th Independence Day the foreign-exchange control regime will be changed, permitting most foreign-currency transactions except for certain prohibited transactions, and the sheqel will become a fully convertible currency, the Minister of Finance, Yaacov Neeman, and the Governor of the Bank of Israel, Professor Jacob Frenkel, in consultation with the Prime Minister, announced another stage in the removal of foreign-exchange controls. The following steps will go into effect as soon as the necessary preparations have been completed.

  • Israelis-households, businesses, institutional investors, and nonprofit organizations-will be permitted to purchase foreign currency with local currency in order to place it in foreign-currency deposits (Pamah) in banks in Israel. Currently only foreign currency which originates from abroad, or is received as a foreign-currency loan from a bank in Israel or abroad, may be placed in this kind of deposit. Money deposited by provident funds in foreign-currency deposits in banks in Israel will be included in the upper limit of their investment in foreign currency, currently 5 percent of their asset value.
  • Residents will be permitted to transfer money between foreign-currency deposits for any purpose. The recipient of the transfer will be allowed to continue holding the foreign currency in his foreign-currency deposit. Currently transfers of this kind are restricted to transfers that have been specifically authorized, e.g., transfers between relatives, exporters, travel agents, etc.
  • All existing restrictions on the advance purchase of foreign currency for future transactions and for local/foreign-currency futures transactions will be abolished.
  • Both residents and nonresidents will be permitted to lend and borrow securities. Hitherto, selling short, which is accepted practise in stock-exchanges, was prohibited.

The nonfinancial private sector:

Households

  • Residents living abroad will be permitted to open and operate bank accounts there, in which they will be able to deposit foreign currrency originating abroad as well as foreign currency legally remitted from Israel. Before returning to Israel the resident- unless he or she is an exempt person (new immigrant or temporary resident)-will have to close the account. This change is intended mainly to help residents on extended stays abroad (e.g., for work or study), who are currently unable to open bank accounts abroad for their first 180 days there.
  • Residents and nonresidents will be permitted to purchase $ 1,000 on leaving Israel without presenting any documents or personal identification. Hitherto, on departing from Israel a nonresident could purchase up to $ 500 at the point of exit without presenting documents but after presenting a passport proving his status as a nonresident. This facility did not exist for residents. Abolishing the need for personal identification will simplify the procedure for the public, and reduce the bureaucracy involved in purchasing foreign currency at points of exit, mainly at overland border crossings (to Jordan and Egypt), where bottlenecks are created when organized groups leave.

The business sector:

  • The upper limit on investment by Israeli firms in securities abroad will be abolished. This limit was recently raised to 15 percent of turnover or 25 percent of their equity.
  • Israeli companies issuing shares abroad will be permitted to leave the money thus raised abroad, and will be able to use the money for the same purposes for which it could be used in Israel. Hitherto this could only be done on receipt of individual permits.
  • The time-limits within which exporters had to transfer to Israel money received in payment for exports, and importers had to make advance payments for imports, will be abolished. To date, exporters were unable to grant buyers abroad more than 12 months' credit for exports, and had to receive payment within 12 months of implementing the transaction. In addition, importers were forbidden to make advance payments for imports which were not due to arrive in Israel within 12 months from the date of payment. Note that exporters are still obliged to transfer to Israel payments for exports immediately upon receipt, except for 10 percent of the value of exports during the preceding year, which may be held in accounts abroad.

The financial sector:

Mutual funds

All restrictions on investment in foreign securities by mutual funds will be lifted. The upper limit on investment of this kind was recently raised, and now stands at 50 percent of the fund's asset value.

Banks

  • Section 18a of the Liquidity Regulations, limiting banks' foreign-currency exposure, will be revoked. To date, banks were required to manage their foreign-currency assets and liabilities in such a way that the net foreign-currency assets and liabilities of the entire system did not exceed $ 1.1 billion. This restriction is now removed, and the banks may manage their foreign-currency assets and liabilities as they see fit, subject to the requirements of proper management as delineated by the Supervisor of Banks. This change will deepen the foreign-currency market.
  • The foreign-currency liquidity requirement of banks with an Israeli bank against residents' foreign-currency deposits will be replaced by a local-currency liquidity requirement. To date, the banks held their liquidity requirement against residents' foreign-currency deposits in foreign-currency deposits with the Bank of Israel. Henceforth, the liquidity requirement on foreign-currency deposits will be brought into line with that on foreign-currency-indexed deposits. The liquidity requirement on nonresidents' foreign-currency deposits will remain in foreign currency.

Nonresidents

  • Nonresidents will be permitted to convert local currency deposited with the Bank of Israel into foreign currency even if it does not originate from a foreign-currency source. Currently this right is contingent on the local currency originating from an earlier conversion of foreign currency by the nonresident.
  • The banks in Israel will no longer be forbidden to buy sheqels in exchange for foreign currency. At present the banks in Israel are not allowed to buy sheqels accumulated abroad from foreign banks. The annulment of this ban is intended to increase the sheqel's convertibility and marketability in world money markets.
  • Nonresidents will be permitted to use their nonresident's local-currency deposit, which is a convertible deposit, for undertaking those transactions permitted in a nonresident's foreign-currency deposit.

The Ministry of Finance and the Bank of Israel announced that these measures will widen the scope of the business sector to manage its financial affairs, as well as those of households and institutional investors acting on their behalf to manage their asset portfolios. At the same time, nonresidents will have greater freedom to convert local currency into foreign currency.