Bank of Israel
Israel's central bank, responsible for monetary policy, currency issuance, banking supervision, foreign-exchange reserves, and financial stability.
Last updated August 26, 2026
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Overview
The Bank of Israel is the central bank of the State of Israel. It was established by the Bank of Israel Law of 1954, taking over currency-issuance and banking-supervision responsibilities that had previously been divided between the Ministry of Finance and the country's commercial banking system. Its headquarters are in Jerusalem, with a branch in Tel Aviv. The bank's core mandate is to preserve price stability and support the stability and orderly functioning of Israel's financial system. It sets and implements monetary policy, conducts market and foreign-exchange operations, manages the country's foreign-exchange reserves, supervises and regulates banks, oversees important elements of financial-market infrastructure, and produces economic research and official financial statistics. Under the Bank of Israel Law, it has the exclusive authority to issue Israeli banknotes and coins. The bank also acts as a key adviser to the government on macroeconomic and financial matters. The institution's role expanded in stages. Foreign-exchange supervision was transferred from the Ministry of Finance in 1978, while the foreign-exchange market was progressively liberalized and supervisory controls were ultimately abolished in 2003. The bank's institutional position was reinforced during the 1985 Economic Stabilization Plan, which helped end a period of exceptionally high inflation and restricted direct government borrowing from the central bank to finance budget deficits. Since 1992, monetary policy has operated within an inflation-targeting framework; the government's current target range is generally 1% to 3% annually. A major constitutional change came with the new Bank of Israel Law approved in 2010. The law strengthened the bank's operational independence, clarified its objectives, and established a Monetary Committee for interest-rate and monetary-policy decisions and a Supervisory Council for management matters. This replaced the less clearly separated governance structure associated with the original 1954 framework. The bank has played a central role during repeated economic shocks. In the 1960s it responded to recession, bank failures, and inflationary pressure. During the 1983 bank-stock crisis and the subsequent inflation crisis, it participated in measures to protect depositors and stabilize the financial system. Under Governor Stanley Fischer, the bank responded to the global financial crisis by cutting interest rates, purchasing foreign currency and government bonds, and using its balance sheet to support market liquidity and financial conditions. The institution has also continued to promote competition and modernization in banking. During Amir Yaron's governorship, it approved the establishment of new banking entrants, including Bank One Zero and Bank Ash Israel. The Bank of Israel is not a commercial bank and does not operate as a consumer-facing financial brand. Its principal stakeholders are the Israeli government, regulated financial institutions, households and businesses affected by monetary conditions, and international financial organizations. Its Jerusalem headquarters, designed by Arieh Sharon and Eldar Sharon, was inaugurated in 1981 and substantially renovated between 2015 and 2018. Amir Yaron has served as governor since 2018.
History
After Israel became independent in 1948, the Anglo-Palestine Bank, later renamed Bank Leumi, retained responsibility for issuing banknotes because the young state needed a functioning currency system quickly. Monetary policy, foreign-exchange administration, and banking supervision remained largely under the Ministry of Finance. The division of responsibilities exposed the limitations of a system in which the government both shaped policy and oversaw banking institutions. In March 1951, a committee was formed to study the creation of a state bank. Its members included Eliezer Kaplan and Levi Eshkol, and the committee consulted foreign experts and examined central-bank models abroad. The proposed institution was expected to stabilize the currency, support production and employment, and improve supervision of credit allocation. Debate focused on how independent the bank should be from the government. The eventual compromise gave the Bank of Israel limited independence under the 1954 law, while leaving it subject to obligations that could require support for government expenditure. The bank began operations on 24 August 1954 under its first governor, David Horowitz. During its first years, the bank absorbed the currency-issuance unit and the banking-supervision unit of the Ministry of Finance. It gradually created dedicated monetary, research, foreign-currency, and market-operation departments. The banking sector consolidated during this period, with cooperative credit societies and smaller institutions merging into larger banks. This strengthened supervisory capacity but also increased the importance of public authorities in allocating and monitoring credit. Horowitz's early tenure coincided with economic growth and relative stability, but inflationary pressures intensified in the 1960s. In 1962, rising consumption, wage pressures, and an external deficit contributed to a major devaluation of the Israeli pound. The 1966 recession then forced the bank to manage a serious downturn and several bank failures. The institution intervened to protect depositors, establishing an early precedent for its lender-of-last-resort and financial-stability responsibilities. The 1970s brought further challenges. Inflation accelerated, public spending rose after the Six-Day War, and the Yom Kippur War and global energy shock worsened fiscal and balance-of-payments pressures. In 1974, the bank intervened in Israel-British Bank and dismissed its management after criminal irregularities were discovered. Foreign-exchange supervision was transferred from the Ministry of Finance to the Bank of Israel in 1978, expanding the institution's role in external financial operations. By the early 1980s, inflation had become extremely severe, while the 1983 bank-stock crisis threatened financial stability. Governor Moshe Mendelbaum and other officials confronted a combination of collapsing confidence, unstable bank shares, fiscal imbalances, and rapidly rising prices. Inflation reached an extraordinary peak in 1984. The national Economic Stabilization Plan adopted in 1985 combined budget reductions, subsidy cuts, wage restraint, high interest rates, exchange-rate stabilization, and temporary administrative price controls. The currency was redenominated: the shekel was replaced by the new shekel after three zeros were removed. An important legal amendment also barred the government from borrowing directly from the central bank to cover budget deficits. Inflation fell to single-digit levels, and the bank's institutional credibility was strengthened. The appointment of Michael Bruno as governor in 1986 coincided with the consolidation of stabilization policies and a broader strengthening of bank supervision. During the following years, Israel progressively liberalized its foreign-exchange regime. The Bank of Israel's foreign-currency supervision function was eventually abolished in 2003, with remaining activities reorganized around market operations, monitoring, and research. In the 1990s and early 2000s, the bank developed an inflation-targeting framework and managed monetary policy with the objective of meeting a government-set price-stability range. Jacob Frenkel and David Klein oversaw periods of monetary reform, market liberalization, and integration with the global economy. Klein's tenure also included disputes with the Ministry of Finance over the bank's employment and salary arrangements, reflecting unresolved questions about the governance of an independent public institution. Stanley Fischer became governor in 2005 and promoted a new legal framework, structural reform, and clearer relations with the Treasury. During the 2008 global financial crisis, the bank used interest-rate reductions, foreign-currency purchases, and government-bond purchases to support liquidity and reduce borrowing costs. Internal reorganization in 2008 replaced several older departments with divisions focused on markets, research, information, and statistics. The new Bank of Israel Law, approved in March 2010 and effective from June of that year, gave the bank greater independence in selecting and implementing monetary-policy tools. It also formalized a Monetary Committee for policy decisions and a Supervisory Council for managerial oversight. Karnit Flug, governor from 2013 to 2018, continued the bank's emphasis on monetary control and international economic integration. Amir Yaron became governor in 2018. Under his leadership, the bank supported increased competition in Israeli banking by approving new banking entrants, while continuing to manage monetary policy, supervise banks, administer currency, and safeguard financial stability.
- 2018
Amir Yaron becomes governor
[1]Amir Yaron began his tenure as governor and later oversaw approvals for new Israeli banking entrants.
- 2010
New central-bank law takes effect
[1]The new law strengthened policy independence and established the Monetary Committee and Supervisory Council.
- 2003
Foreign-exchange controls substantially liberalized
[1]The foreign-currency supervision function was abolished after a prolonged liberalization process.
- 1992
Inflation-targeting framework adopted
[1]Monetary policy began to be conducted to meet an inflation target set by the government.
- 1985
Economic Stabilization Plan and new shekel
[1]Israel introduced a comprehensive anti-inflation program and replaced the shekel with the new shekel.
- 1981
Jerusalem headquarters inaugurated
[1]The bank's distinctive Jerusalem headquarters, designed by Arieh Sharon and Eldar Sharon, opened.
- 1978
Foreign-exchange supervision transferred
[1]Foreign-currency supervision moved from the Ministry of Finance to the Bank of Israel.
- 1954
Bank of Israel established
[1]The Knesset enacted the Bank of Israel Law, and the bank began operating on 24 August under Governor David Horowitz.
- 1951
Committee formed to study a state bank
[1]A government committee began developing the institutional model and objectives for an Israeli central bank.
Products and positioning
Israel's independent statutory central bank and monetary authority
Currency · 1954
Israeli banknotes and coins
The Bank of Israel has the exclusive statutory authority to issue Israeli banknotes and coins. Currency issuance is a core public function rather than a commercial product, covering the design, production, circulation, and integrity of the national currency.
Central banking service · 1954
Monetary policy
The bank sets and implements monetary policy, including decisions affecting the policy interest rate and market liquidity. Since 1992, its framework has been oriented toward meeting a government-defined inflation target while supporting orderly economic and financial conditions.
Financial regulation · 1954
Banking supervision
Through its supervisory function, the bank regulates and monitors Israel's banking institutions, assesses risks, supports depositor protection, and contributes to the resilience and orderly operation of the banking system.
Reserve management · 1954
Foreign-exchange reserve management
The bank manages Israel's official foreign-exchange reserves and conducts foreign-exchange and market operations. These activities support monetary and financial stability and provide the state with an external liquidity buffer.
Economic information · 1954
Financial research and statistics
The bank's research and information functions produce economic analysis, monetary-policy support, and financial statistics used by public authorities, market participants, researchers, and the public.
Controversies
Brand decisions
2018
Approval of new banking entrantsOtherBackground
Israel sought to increase competition and modernize its banking sector.
Action taken
During Amir Yaron's tenure, the bank approved the establishment of Bank One Zero and Bank Ash Israel.
Aftermath
The approvals supported the entry of new banking institutions into the Israeli market.
2010
Implementation of a more independent governance frameworkStrategyBackground
The original 1954 institutional framework did not clearly separate policy decisions, managerial oversight, and operational independence.
Action taken
The new Bank of Israel Law established clearer objectives, strengthened independence over policy instruments, and assigned monetary decisions to a Monetary Committee and management oversight to a Supervisory Council.
Aftermath
The bank's governance became more closely aligned with modern central-bank practice.
2008
Crisis-era monetary and market interventionStrategyBackground
The global financial crisis threatened liquidity, demand, and financial-market functioning.
Action taken
The bank rapidly reduced interest rates, purchased foreign currency, and bought government bonds to support liquidity and lower interest rates.
Aftermath
The response was widely recognized as an effective central-bank reaction to the crisis.
1985
Participation in the Economic Stabilization PlanStrategyBackground
Israel faced exceptionally high inflation, fiscal deficits, external imbalances, and unstable expectations.
Action taken
The bank supported high interest rates, exchange-rate stabilization, temporary price controls, fiscal restraint, and a legal restriction on direct government borrowing from the central bank.
Aftermath
Inflation fell to single-digit levels and the Bank of Israel's policy credibility and institutional position were strengthened.
1985
Introduction of the new shekelGeneration changeBackground
Currency redenomination formed part of the national response to severe inflation.
Action taken
Israel replaced the shekel with the new shekel by removing three zeros from the currency unit.
Aftermath
The new currency supported the broader stabilization effort and simplified monetary denomination.
Recent events
- 2018
Approval of new Israeli banking entrants[1]
Regulation · Product launch
During Amir Yaron's tenure, the bank approved the establishment of Bank One Zero and Bank Ash Israel.
- 2010
New Bank of Israel Law strengthens institutional independence[1]
Regulation
A new law clarified the bank's objectives, granted greater independence over policy instruments, and created a Monetary Committee and Supervisory Council.
- 2008
Bank of Israel responds to the global financial crisis[1]
Other
Under Stanley Fischer, the bank rapidly adjusted interest rates, accumulated foreign currency, and purchased government bonds to support liquidity and lower financing costs.
- 1985
Economic Stabilization Plan and new shekel[1]
Product generation
The bank supported a national stabilization program combining fiscal restraint, high interest rates, exchange-rate measures, temporary price controls, and replacement of the shekel with the new shekel.
- 1983
Bank-stock crisis challenges Israel's financial system[1]
Other · Regulation
The central bank confronted a major crisis involving Israeli bank shares and broader financial instability.
- 1978
Foreign-exchange supervision transferred to the Bank of Israel[1]
Regulation · Other
Responsibility for foreign-currency supervision moved from the Ministry of Finance to the central bank.
- 1966
Bank of Israel intervenes during the 1966 banking failures[1]
Other
During a severe recession, several private banks failed and the central bank used its statutory powers for the first time to help protect depositors.
- 1954
Bank of Israel is established under the Bank of Israel Law[1]
Other
The new central bank assumed currency-issuance and banking-supervision functions previously divided between the Ministry of Finance and other institutions.
Sources2 sources
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