All change: Israel’s currency is set to take its place in the world markets.
The Bank of Israel has joined the New York-based CLS (Continuous Linked Settlement) Bank (a multi-currency bank supervised by the US Federal Reserve that serves as an international clearinghouse for inter-currency transactions), which will enable the Israeli shekel to be full convertible on international currency markets by June. Shekels will then be available at all the major commercial banks in about 80 developed and developing nations around the world.
The process of making the shekel convertible began after Bank of Israel governor Stanley Fischer took office in May 2005. In April 2006 officials from CLS visited Israel to examine the country’s economic and monetary status and to gauge the strength of the shekel. As a condition of joining, the CLS Bank demanded that the Bank of Israel adopt an RTGS-Real Time Gross Settlements-system. This created a clearing system that settles and transfers transactions in real time rather than after a delay. The other criterion was that Israel should enact a settlement and clearing law, which passed the Knesset (Israel’s parliament) in early March.
The Bank of Israel’s membership in CLS Bank will upgrade Israel’s shekel and foreign currency system of payments, which will become immediate and final for almost any currency. The Bank of Israel’s Zahav computerized clearing system handled $3.5 trillion in more than 145,000 transactions during the fourth quarter of 2007.
Two Israeli commercial banks-most likely Bank Hapoalim and Bank Leumi-will also become clearing members, with clearing accounts in their systems. A third Israeli commercial bank-as yet unnamed-will function as a liquidity supplier. The two commercial banks will clear foreign currencies, while other Israeli banks with accounts of foreign banks that are members of CLS Bank will be able to provide those banks with clearing services in shekels using the Zahav computerized clearing system.
The move improves Israel’s status among institutional and private investors and, no less importantly, among the international credit rating agencies Moody’s, Standard and Poor’s, and Fitch. It will significantly reduce the exchange-rate risks that Israel’s financial sector faces in the international marketplace. Even now, many institutions, including the IMF, consider Israel’s economy to be "developed," rather than "emerging."