• In 2019, the Bank recorded income from its foreign exchange reserves of approximately NIS 10.3 billion, most of which was from interest and capital gains from tradable securities and from derivative financial instruments. These revenues were offset by exchange rate differential expenses of NIS 7.4 billion, mainly due to the appreciation of the shekel vis-à-vis the dollar and euro and other expense items. In all, the Bank recorded a profit of NIS 857 million in 2019, following a profit of NIS 5.3 billion in 2018.
  • In the beginning of 2020, a new risk factor to global activity broke out, with the spread of the coronavirus. As of the date of approval of the financial statements, it has led to changes in many indices in financial markets in Israel and abroad, which may have an impact on the next financial statements. In addition, due to the development of the virus event and its ramifications, the Bank of Israel is taking policy steps as part of its functions under the law, and these may also have an impact on the financial statements.
  • According to the accounting principles customary at central banks, unrealized profits resulting from the revaluation of tradable securities and financial instruments to fair value and from exchange rate differentials on the foreign exchange reserves, as well as profits and losses from actuarial differentials, are attributed to the revaluation accounts and are only recorded on the statement of operations when they are realized. In contrast, negative revaluations, (except for negative revaluations from actuarial differentials), are attributed to the statement of operations.
  • In 2019, the shekel appreciated against the major currencies in the reserves portfolio, primarily against the US dollar, by 7.8 percent. The appreciation’s main impact on the shekel value was offset by a reduction of NIS 27.3 billion in the revaluation account from profits accumulated from previous years, and therefore it is not reflected in the statement of operations.
  • In recent years, the Bank gradually increased the share of the foreign exchange reserves invested in equities, which markedly impacted the profits on the reserves portfolio. However, the profits from the increase in their value and from other investments in which the reserves are held are not included in the Bank’s statement of operations as long as they weren’t realized, and they have been attributed to the revaluation account on the balance sheet. In 2019, unrealized gains of NIS 13.6 billion that derived mainly from the increase in share prices, were attributed to the revaluation account.
  • In 2019, the Bank of Israel’s balance sheet totaled around NIS 440.4 billion, a slight increase over the NIS 439.6 billion in 2018. The increase on the assets side is mostly attributed to an increase in the foreign exchange reserves, which were NIS 435.5 billion at the end of 2019. The foreign exchange reserves increased mainly by foreign exchange purchases of NIS 13.7 billion and from interest income and capital gains totaling NIS 23.9 billion, and the reserves decreased by about NIS 35.9 billion mainly from negative exchange rate differentials. The liabilities on the balance sheet increased by about NIS 14.7 billion, as a result of several main factors: (1) the increase in the balance of monetary absorption tools—makam and time deposits—by a total of about NIS 18 billion, to NIS 313.8 billion. (2) An increase of NIS 4.7 billion in the monetary base, in view of the growth of GDP. In contrast, there was a decrease in liabilities as a result of the reduction in government deposits by about NIS 8.1 billion.
  •  Due to the currency imbalance[1] that is characteristic of the Bank’s balance sheet, and due to the fact that the financial statements are presented in shekels, changes in the shekel’s exchange rate against the currencies in which the foreign exchange reserves are denominated on the balance sheet have an effect that is reflected in fluctuations in the shekel value of the reserves. The Bank does not act to hedge the effect of these changes, and does not act to maximize yields in shekel terms, but rather in terms of the numeraire[2], subject to the guidelines for the investment policy of the foreign exchange reserves delineated by the Monetary Committee.
  • The Bank of Israel fulfills the functions imposed on it as the central bank, and acts to achieve the objectives set for it pursuant to the Bank of Israel Law, 5770-2010: maintaining price stability and supporting growth, employment, the reducing of social gaps, and supporting the stability and orderly activity of the financial system. Some of the actions taken by the bank have significant ramifications on its financial statements, but alongside those, the achievement of the Bank’s objectives and fulfillment of its functions have economy-wide advantages that are not reflected in the financial statements.
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[1] While the vast majority of the assets on the balance sheet are denominated in foreign currency, liabilities are mostly denominated in shekels.

[2] See the report on investment of the foreign currency reserves for 2019 for details. In that report, the return on holding the reserves portfolio is measured in terms of the basket of currencies—the numeraire. The numeraire is a composite that includes three currencies—the dollar, the euro, and the pound sterling—which reflects the potential uses of the reserves.​​