April 23, 2000

The composition of the currency basket with reference to which the exchange-rate band is defined will be changed in 2000: the share of sterling will be reduced

The Foreign Currency Department announces that according to calculations made by the Bank of Israel, the gap between the share of the pound sterling in the currency basket-according to which the exchange-rate band is defined-and its share of Israel’s foreign trade in 1999 (imports and exports of goods and services, excluding diamonds) exceeds 2 percentage points. Consequently, on May 2, 2000 the composition of the currency basket and the number of units comprising it will be changed in such a way as to reduce the share of sterling by 2.06 percentage points, increase that of the euro by 1.86 percentage points, increase that of the yen by 0.62 percentage points, and reduce that of the dollar by 0.42 percentage points. The decision to revise the composition of the currency basket was reached in consultation with the Ministry of Finance. The Foreign Currency Department notes that this year the changes will not be implemented on April 30, as is customary, but on May 2, as April 30 falls on a Sunday (when the foreign-currency markets are closed), and on May 1 most of the European foreign-currency markets are closed and the Bank of Israel will not publish representative rates. Note, too, that the exact amount of each currency comprising the currency basket at the time the change is made will be known only on the actual day, May 2, as this depends on their cross rates, which are determined abroad and change daily. The Foreign Currency Department announces that this change in the composition of the currency basket will have no immediate effect on the exchange rates of the various currencies and the currency basket vis-?-vis the NIS. The effect this change will have in the future depends on the way exchange rates develop on international markets. The average weights of the various currencies in the currency basket and in trade in 1999, and the gaps between them, are given below:

Yen
Sterling
Euro
Dollar
6.03
6.85
24.57
62.55
Trade composition (%)
5.42
8.91
22.71
62.97
Basket composition (%)
0.62
-2.06
1.86
-0.42
Gap (%)

In 1995 the Bank of Israel decided, in consultation with the Ministry of Finance, to routinely update the composition of the currency basket annually, on the 30th April, doing so on the basis of the currency composition of trade in the preceding year. If a gap of at least 2 percentage points emerged between the weight of one (or more) of the currencies in the basket and its average share of trade, the composition of the currency basket would be changed to bring it into line with the composition of trade. As a result of that decision, the composition of the currency basket was not changed in 1997 and 1998, as the gap between the average weight of each of the currencies comprising it and its average share of Israel’s foreign trade in the preceding year was less than 2 percentage points. In 1995 and 1996 the share of the dollar in the currency basket was increased, and those of the other currencies were reduced.