Israel had a new currency of this morning, the Shekel, named for the silver coin of the Bible that was last in use some 2000 years ago. The change-over from the Pound, which has been Israel’s official currency since the State was founded, was announced by the government Friday. At the same time, the government announced tough new measures to crack down on tax evasion with severe penalties for violators.
Israelis will be required to trade in their Pounds for “Shkalim” at the rate of ten to one, beginning today. The Pound will be phased out over the next few months but will remain legal tender along with the Shekel until then. Amon Gafni, Governor of the Bank of Israel, told reporters that the government had been preparing for the currency switch for more than two years, on orders given by Premier Menachem Begin shortly after he took office and by the then Finance Minister, Simcha Ehrlich. According to some reports, the government decided to introduce the Shekel sooner than intended because of leaks.
REACTION IN THE MONEY MARKET
The change-over was greeted with some nervousness. There was a significant drop in stock prices today although cost-of-living linked bonds held their ground. Foreign exchange rates rose in response to a surge of demand for foreign currencies. This occurred in Arab villages and East Jerusalem yesterday and in the rest of Israel today. Israeli banks were closed yesterday. The U.S. dollar soared from a rate of IL 38.8-51 to IL 42-51 and the German mark also rose against the Pound. But the government mode it clear that the change of currency was not a new devaluation. The Shekel will be pegged at 3.80-51.
The reappearance of the ancient currency, used according to the Bible by the Patriarch Abraham, is intended to have a psychological impact an Israelis who associate the Pound with triple-digit-inflation. Hopefully, it will engender a new respect for the national currency. Finance Minister Yigal Hurwitz went on the radio and television Friday to exhort the public to “save more” and “guard the Sheket” which, he promised, will become a strong and stable currency. He also announced the new tax law aimed against tax evaders who he denounced as a “cancer” eating away at the economy. He said the rate of inflation is already declining and the new measures would play a major role in accelerating the decline.
ONE HURWITZ MEASURE REJECTED
The new tax law will require a one-time declaration of assets by all citizens except low to moderately paid wage-earners. The deadline for filing the declarations is May. Persons who earned less than IL 660,000 during fiscal 1979-80 are exempt but all others will have to fill out detailed forms specifying whatever income sources they have, whether cash, real estate, shares of stock or other securities or property. Hurwitz indicated that his staff will be enlarged by transferring civil servants from other departments to make random examinations of the declarations. Yaacov Neeman, Director General of the Finance Ministry said failure to comply on time could bring stiff fines of up to IL 25,000 per month and other punitive measures such as barring the violator from traveling abroad.
Hurwitz sustained a setback Friday when the Cabinet, meeting in special session, rejected an even tougher proposal requiring that safe deposit boxes in bank vaults be opened in the presence of an income tax official as a means of tracing large boards of “black money.” But the Cabinet majority, led by Begin, opposed this as an unwarranted invasion of privacy.
Hurwitz acknowledged that the currency change-over and the new tax measures were not linked. But he sought to portray them as part of the government’s determined effort to “root out this evil plague of black money,” meaning money that passes through the economy without being taxed. Hurwitz is also pressing for another tax measure that will require all cash deals above IL 15,000-or 1500 Shekels–to be reported to the Treasury. Until now, cash transactions have been the principal means of avoiding taxes.
Bank notes presently in circulation will be translated into Shkalim with no change in their appearance. The IL 500 note will become a 50 Shekel note but will continue to bear the portrait of David Ben Gurion, Israel’s first Prime Minister. The IL 50 note will become a five Shekel note with the portrait of Chaim Weizman and Theodor Herzl’s portrait will continue to mark the 10 Shekel note, previously IL 100. The long anticipated IL 1000 Pound note bearing the portrait of Revisionist leader Vladimir Jabotinski will be issued next fall as a 100 Shekel note, Gafni said. New coins will be minted to replace the current IL 1 and IL .50 coins, but much lighter metal will be used saving the government IL 130 million in the current year, Gafni said.
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