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Will Israel Shackle the Shekel?

So far, Israel's central bank is resisting demands from business and labor to restrain the shekel's soaring rise against the dollar

For decades Israelis have viewed the U.S. dollar almost as a second national currency. Everything from rents to savings were linked to the greenback, which for many people represented financial stability in a country traditionally wracked with high inflation.

But in the past two years, Israelis have undergone an unprecedented challenge as the value of their own currency, the shekel, has soared against the dollar and more recently even against the euro. The dollar bought 4.7 shekels in November, 2005. Now the greenback is worth 3.6 shekels. In other words, the shekel has risen by more than 20% in that time—and 6% in the past month alone. Now both business and labor are calling loudly for a weaker currency. On Feb. 7 Prime Minister Ehud Olmert convened an emergency meeting of the country's top economic leadership to discuss what is being dubbed the "dollar crisis." At the same time Olmert and Finance Minister Ronnie Bar-On came out strongly in support of Bank of Israel Governor Stanley Fischer, who is opposed to any government intervention in the foreign currency market.