Bank of Israel’s Foreign Exchange Reserves

According to the Bank of Israel Law, 5770–2010, the Bank of Israel is entrusted with maintaining and managing the country’s foreign exchange reserves.  The reserves fulfill three main functions: 1) Providing an emergency supply of foreign exchange for the economy, at an amount that will suffice during a crisis; 2) Giving the central bank the ability to intervene in the foreign exchange market when the exchange rate deviates from the range that is consistent with the economy’s basic equilibrium or when the foreign exchange market does not function properly (market failure); 3) Giving the central bank the ability to act in the foreign exchange market in order to moderate the impact of capital flows that may destabilize the financial markets.

The investment policy targets for the reserves are to achieve a strong return in foreign currency terms and a shekel return that will cover the cost of financing, while meeting risk and liquidity levels that are in line with the goals of holding the reserves.

Each month, changes in the reserves and the causes of those changes are published on the Bank of Israel website.  Various parameters of reserve management—liquidity, yield, risk involved in their investment—are published together with the guidelines of the investment policy in an annual review of the reserves’ performance.