The question of creating a central bank, or as it was called, the State Bank, was discussed in the Ministry of Finance in 1948, immediately after the establishment of the State of Israel. The matter was shelved due to the pressure of events, but an immediate solution was required to the problem of issuing a currency. Thus, the Bank Notes Ordinance, 5708-1948 was introduced, becoming effective on August 17, 1948.
The ordinance defined the authority to issue banknotes in a charter between the government and the Anglo-Palestine Bank, later Bank Leumi Le-Israel B.M. Under the terms of the charter, the Anglo-Palestine Bank set up a special department, the Issue Department, whose task was to issue banknotes. At the same time, the Bank also formed a department to manage State loans.
The process of replacing the notes of the Israel Currency Council with those of the Anglo-Palestine Bank began immediately after the Bank Notes Ordinance went into effect, and the charter was signed and completed by the end of October 1948.
The other functions for which a central bank is usually responsible – monetary policy, banking supervision, etc. – were at that time the responsibility of the Ministry of Finance.
In March 1951, the Minister of Finance, Eliezer Kaplan, appointed the Committee for the Establishment of a State Bank. The committee, which he headed, submitted its findings in September 1952. These consisted of general recommendations in two areas: the organization of the Bank and the relationship between the bank and the government. The report provided the basis for the preparation of the Bank of Israel Law, which was coordinated by the first Director-General of the Ministry of Finance, David Horowitz, who later became the first Governor of the Bank of Israel.
The Bank of Israel Law, 5714-1954 was passed by the Knesset on August 24, 1954, and became effective on December 1 of the same year. On that date, the Bank of Israel was officially established. The Law replaced the Bank Notes Ordinance of 1948 and other legislation introduced by the Provisional Council of State, which had hitherto regulated the subjects that became the responsibility of the central bank.
Once established, the Bank of Israel took over the Issue Department of Bank Leumi Le-Israel B.M. and the Banking Supervision Department of the Ministry of Finance. Foreign exchange control was transferred to the Bank of Israel in 1978.
The Bank was made completely independent in 1985, and since 1992, the Bank manages its monetary policy to meet the inflation target set by the Israeli government. The Bank also supports the Government’s goals of growth, employment, and financial stability.
In 2010, the Knesset approved a new Bank of Israel Law which took effect on June 1, 2010. The law defined the goals of the Bank and gave it independence in determining its policy tools and the way of implementing them. The law changed the framework in which major decisions are made, with those regarding the interest rate and monetary policy overseen by a Monetary Committee and managerial decisions by a Supervisory Council.
The bank is in Kiryat Ben Gurion in Jerusalem. The Bank has a branch in Tel Aviv, and there is also an extension of the Banking Supervision Department in Tel Aviv.
At the Tel Aviv office, there is a Visitors Center with an exhibition showing the development of money and the issue of money, and with films, lectures, and games explaining the main functions of the Bank.
Governors
David Horowitz, 1954–1971
Moshe Sanbar, 1971–1976
Arnon Gafni, 1976–1981
Moshe Mendelbaum, 1982–1986
Michael Bruno, 1986–1991
Jacob A. Frenkel, 1991–2000
David Klein, 2000–2005
Stanley Fischer, 2005–2013
Karnit Flug, 2013–2018
Nadine Baudot-Trajtenberg, acting governor from 14 November until December 24, 2018.
Amir Yaron, 2018–present
Sources: The Bank of Israel.
“Bank of Israel,” Wikipedia.
Photo: by Ester Inbar, available from https://commons.wikimedia.org/wiki/User:ST., Attribution via Wikimedia Commons.
