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Monitoring and Analyzing Foreign Exchange Activity
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(by what was formerly the Foreign Exchange Control Department)
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The process of liberalizing foreign exchange controls began in the early 1990s, with the gradual removal of restrictions that had previously applied to foreign-currency transactions by residents and vis-a`-vis nonresidents. The process was completed by 31 December 2002, with the removal of the last restriction. This brought to an end the control of foreign exchange in Israel, enabling the NIS to become a fully convertible currency, in line with the situation in other developed countries.
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Concurrent with the process of liberalization, the role of the Foreign Exchange Control Department also changed. When restrictions were in effect, the Department dealt primarily with ensuring that they were observed, examining transactions, and issuing permits. As the liberalization process proceeded, the focus of the Department's activities shifted to managing data on activities in foreign currency and vis-a`-vis abroad, as well as undertaking analysis and research on the basis of these data. The results of the Department's efforts were used in drawing up policy, and the data and research studies were made available to the public. Accordingly, since 1 December 2002 the Department is known as the Foreign Exchange Activity Department.
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The Department's spheres of activity include monitoring, analyzing and studying all Israel's foreign-currency transactions, as well as those in local and foreign currency conducted with nonresidents, which are expressed in the balance of payments. The Department also manages a reporting system on the status of Israel's assets and liabilities
(International Investment Position, IIP), completing the data on the
balance of payments
and
state of the external debt
. The databases, some of which are situated in the Department, make it possible to monitor and analyze capital flows and transactions. In recent years the importance of analyzing capital flows and foreign-currency activities has grown, as Israel's economy has been opened up and become increasingly integrated in the global economy.
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The rising share of capital flows in economic activity and Israel's classification as an emerging economy make it necessary to closely monitor and analyze the capital flows and activities which affect the exchange rate. The updating of data regarding the extent and composition of capital flows, purchases and sales of foreign currency, kinds of transactions, and the analysis of these activities vis-a`-vis abroad all help in the identification of developments and understanding of processes, constituting an important input in the formulation of monetary policy and maintenance of financial stability.
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The information gathered in the department is processed and made available to the public via several channels on an ongoing basis and with a minimum of delay, thereby improving the quality and accessibility of the information available to economic agents active in the financial markets.
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The research activity of the Department in the above area is reflected in the Foreign Exchange -
Discussion Paper Series.
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About the Bank of Israel