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The History of the Bank of Israel


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 for the young State. 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 was 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,  subsequently the first Governor of the Bank of Israel. The major issues dealt  with were defining the relationship between the central bank and the  government, and guaranteeing the Bank's independence.

The Bank of Israel Law, 5714-1954 was passed by the Knesset on August  24th, 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 which became the  responsibility of the central bank.

Once established, the Bank of Israel took over the Issue Department of Bank  Leumi Le-lsrael B.M. and the Banking Supervision Department of the Minister  of Finance. Foreign exchange control was transferred to the Bank of Israel in  1978. 

The Bank of Israel is situated in Kiryat Ben Gurion in Jerusalem, close to the  Knesset (Israel's parliament), the Supreme Court, and government ministries.  The Bank also has a branch in Tel Aviv (in Lilienblum Street). An extension of  the Banking Supervision Department is also situated in Tel Aviv (in Yavneh  Street). 

The Bank currently (2001) has some 800 employees, about 300 of whom have degrees in economics, accountancy, law, etc. In the 1980s and the 1990's the Bank  underwent radical restructuring, and the number of employees was cut by  about one third. This cutback was made possible by more efficient work  methods, improvements in the Bank's computer systems, and also by reforms  in the capital and money markets which reduced the Bank's involvement in  the areas of directed credit, State loans, and foreign exchange control.

Bank of Israel