From 445% Inflation to 33-Year High
The only currency in modern monetary history that survived 445% inflation, was redenominated 1,000-to-1, and emerged a generation later as a developed-market currency. Forty years of shekel history — from Palestine pound to a 33-year high against the dollar.
The Israeli shekel is the only currency in modern monetary history that survived 445% inflation, was redenominated 1,000-to-1, and emerged within a generation as a developed-market currency. The story is also the story of Israel: pre-state pounds, state-era lira, the hyperinflation that broke the political system, the 1985 Stabilization Plan that fixed it, and the four decades of strength that followed. The cornerstone reference on how Israel got from there to 2.80 against the dollar.
TEL AVIV · JUNE 6, 2026
The shekel is, depending on which date you start counting from, either one of the youngest major currencies in the world or one of the oldest. The New Israeli Shekel — the currency Israel uses today — was introduced in 1985. The name "shekel" is biblical, drawn from a unit of weight that appears in Genesis. The institutional continuity is short. The cultural continuity is long.
The path runs through every major event in Israel's economic life: the founding of the state, the wars, the hyperinflation, the 1985 Stabilization Plan, the tech-economy emergence of the 1990s and 2000s, the Stanley Fischer intervention years, the COVID surge, the October 7 collapse, and the 2025–2026 ceasefire-driven climb to a 33-year high.
The Palestine Pound (1927–1948)
Before the state, the currency in use in British Mandatory Palestine was the Palestine pound, introduced in 1927 to replace the Egyptian pound that had circulated since the end of Ottoman rule. The Palestine pound was issued by the Palestine Currency Board in London and was pegged to sterling at par. It circulated alongside the Egyptian pound in the early years and entirely on its own from the mid-1930s.
The Anglo-Palestine Bank — founded in 1902 in London as the financial arm of the Zionist movement and the institution that would, after independence, become Bank Leumi — served as the de facto commercial banking system for the Jewish economy of the Mandate. It did not issue currency, but it intermediated Palestine pounds and held the deposits of the proto-state institutions.
The Israeli pound, then lira (1948–1980)
On May 14, 1948, Israel declared independence. Two months later, the Anglo-Palestine Bank — by then renamed Bank Leumi le-Israel — issued the first Israeli pound notes, formally replacing the Palestine pound. The Israeli pound was, initially, also pegged to sterling at par. The currency was renamed the lira (or "lira yisraelit") in Hebrew to distinguish it from the British pound, though English-language financial materials continued to call it the Israeli pound through the 1970s.
The lira survived the founding wars, the austerity of the 1950s, the post-1967 boom, and the post-Yom Kippur War inflation acceleration. By 1980, it had been devalued so many times that the Israeli government decided a new currency was needed. The lira was retired and the shekel — the first iteration — was introduced.
The first shekel (1980–1985) — the failed currency
The first shekel, introduced in February 1980, replaced the lira at 10 lirot to 1 shekel. It was meant to mark a fresh start. It marked, instead, the worst stretch of Israeli inflation in the state's history.
Inflation in 1980 was 131%. In 1981 it was 117%. In 1982, 120%. In 1983, 146%. In 1984 — the worst year — it reached 445%. Prices were repriced multiple times a day. Stores posted prices in dollars and converted at the day's rate. Wages were indexed but the indexation lagged the inflation, which meant real wages were eroding even as nominal wages exploded. The currency stopped functioning as a store of value. Israelis held savings in dollar-denominated bank accounts, in physical dollars, in apartments, in anything that wasn't shekels.
The hyperinflation was the product of several interlocking failures: chronic fiscal deficits driven by defense spending and welfare obligations, accommodative monetary policy that monetized those deficits, indexation that propagated price increases through the economy, and a political system that could not commit to a fiscal correction. By mid-1985, the shekel had effectively ceased to function as a currency, and the political system was, finally, at the breaking point.
The 1985 Economic Stabilization Plan
In June 1985, a government of national unity — Shimon Peres as Prime Minister, Yitzhak Shamir as Foreign Minister, Yitzhak Modai as Finance Minister — announced an emergency stabilization program. The plan had been drafted in detail by a small team of academic economists, most notably Michael Bruno (who would later become Governor of the Bank of Israel) and Stanley Fischer (then a professor at MIT, decades before he would lead the Bank himself).
The plan had four pillars. First, a sharp fiscal contraction: subsidies were cut, government employment frozen, taxes raised. Second, a temporary wage and price freeze, agreed with the Histadrut labor federation. Third, a one-time large devaluation of the shekel, followed by a pegged exchange rate against the dollar. Fourth — the political pillar — a binding commitment, with US emergency-aid backing, that the Bank of Israel would not monetize the deficit going forward.
It worked. Inflation collapsed from 445% in 1984 to under 20% by 1986. By the end of the 1980s, Israel was in the single-digit-inflation regime it has stayed in ever since. The 1985 plan is still taught in graduate macroeconomics as one of the cleanest stabilizations on record — alongside the Bolivian stabilization of the same period and the Brazilian Real Plan of 1994.
The New Israeli Shekel (1985–present)
The redenomination came in September 1985, three months after the stabilization plan. The first shekel was retired and replaced at 1,000-to-1 by a new currency, formally named the New Israeli Shekel in 1986. The currency code is ILS. The symbol is ₪. Everyday Israelis call it simply "shekel" — the "new" qualifier is used only in formal financial contexts.
The redenomination was a psychological act as much as an economic one. It signaled that the hyperinflation was over and a new monetary regime had begun. Note design, denomination structure, and the institutional posture of the Bank of Israel were all reset. The note series of the late 1980s and 1990s featured presidents and prime ministers — Chaim Weizmann, David Ben-Gurion, Levi Eshkol — anchoring the currency in the founders of the state.
The float era (1990s)
Through the 1990s, under Governor Jacob Frenkel, Israel transitioned from a managed-band exchange-rate regime to a free float. Capital controls — which had been a defining feature of the Israeli economy since independence — were gradually dismantled. The shekel became a freely tradable currency. Foreign investors could buy Israeli equity and debt without restriction. Israeli households could hold foreign-currency accounts and invest abroad.
The 1990s were also the decade Israeli tech emerged at scale. The wave of Soviet immigration brought 1 million engineers, mathematicians, and scientists. The Yozma program, launched in 1993, seeded the venture-capital industry. The dot-com boom drew US investment. The shekel strengthened in real terms through the decade even as the Bank of Israel managed a slow-crawling depreciation band. The transition from currency-of-last-resort to currency-of-an-emerging-tech-economy happened in less than ten years.
The Fischer years (2005–2013)
Stanley Fischer became Governor in 2005. His tenure defined the modern shekel. Through the 2008 financial crisis, the Bank of Israel — Fischer's Bank of Israel — was the first developed central bank to begin tightening after the crisis, and the first to anchor a low-inflation, strong-growth, strong-currency model.
Fischer's signature shekel policy was FX intervention. Beginning in 2008, with global capital flowing into the shekel and exporters under pressure, the Bank began buying dollars on a massive scale to slow the appreciation. The intervention ran for years and accumulated over $80 billion in reserves through Fischer's tenure alone. The shekel, in real terms, was held weaker than market forces would have set it — to the benefit of exporters and the cost of consumers.
The Fischer regime established two things that still define the shekel today. First, that the Bank of Israel has the resources and willingness to intervene aggressively when it judges the currency to be moving against fundamentals. Second, that the institution has the credibility to make that intervention stick. Both have shaped market expectations ever since.
The 2010s — tech-driven strength
Through the 2010s, the shekel continued to strengthen in real terms. Israeli tech matured: the Waze exit (2013), the Mobileye IPO (2014) and Intel acquisition (2017), Wix's NASDAQ listing, the wave of cyber-security IPOs. Foreign-currency inflows into Israeli venture rounds and M&A pushed the shekel structurally higher.
The Bank of Israel continued the Fischer-era intervention regime under Karnit Flug, leaning against appreciation through dollar-buying. Reserves climbed past $100 billion, then past $150 billion, then past $200 billion. The 2010s ended with the shekel one of the strongest currencies in the world relative to its 1980s baseline.
The 2020 COVID surge
In 2020, with global central-bank liquidity flooding the system, the shekel surged. Israeli tech IPOs accelerated. Venture funding broke records. The shekel reached roughly 3.10 to the dollar — at the time, a multi-year strong print. The Bank of Israel bought $21 billion of dollars in 2020 alone to slow the move, the largest single-year intervention in the institution's history.
The 2022–2023 judicial crisis
The shekel weakened materially through 2022 and the first three quarters of 2023, as foreign investors reduced Israeli exposure on governance concerns related to the proposed judicial overhaul. By September 2023, the shekel had reached a three-year low against the dollar. Bank of Israel Governor Amir Yaron warned publicly about the economic costs of the overhaul and was attacked by coalition members for doing so. The currency at the time was a near-real-time vote on Israeli institutional health.
The October 7 collapse
On October 7, 2023, the shekel was hit by the largest single-day shock in its history. Inside 48 hours, it lost 3% against the dollar. By mid-October it traded above 4.00 — its weakest level since 2012. The Bank of Israel announced a $30 billion FX-intervention program on October 9 — the first defensive intervention in over a decade.
Through 2024, the shekel traded between 3.60 and 4.00, with the Bank leaning against weakness whenever the upper end approached. The Iran exchanges of April and October 2024 produced volatility but no break. By end-2024, the shekel was 3.60 to the dollar.
Operation Roaring Lion and the 2025 lurch
The shekel's path through 2025 was non-linear. Operation Roaring Lion — Israel's direct confrontation with Iran — produced a Q2 contraction in Israeli GDP, a temporary weakening of the shekel, and an acute spike in sovereign-credit spreads. The post-October-7 recovery was interrupted. By Q3 2025, with the Iran phase resolved, Israeli GDP rebounded 12.4% on an annualized basis, the largest single-quarter print since Q1 2024.
Through the second half of 2025, the shekel resumed strengthening. The October 2025 Gaza ceasefire held longer than markets expected. The Lebanon de-escalation track and the Iran pause reset the entire risk-premium structure. By end-2025, the shekel was 3.26 against the dollar — having strengthened roughly 11% over twelve months.
The 2026 surge to 2.80
The strengthening accelerated through Q1 and Q2 2026. By May 29, the shekel traded at 2.80 against the dollar — the strongest level in 33 years. The Bank of Israel has not intervened. The Ministry of Finance has not pressed it to. The currency reflects, in the official telling, a structural improvement in Israeli fundamentals: the end-of-war risk repricing, the tech-sector surplus, the disciplined inflation regime.
The operating reality for Israeli companies is more complicated. Through May 2026, Meta, Wix, Rapyd, Amdocs, Intuit's Israeli R&D, ZoomInfo, Shutterfly, and SentinelOne have all announced layoffs touching Israeli operations. Wix's CEO has named the shekel by name as a contributing cause. The full breakdown of winners and losers in the 2026 surge is the subject of Strong Shekel, Fired Israelis.
What the history teaches
Four lessons run through forty years of shekel cycles.
First: the shekel reflects, at any moment, what global capital thinks about Israel. When the answer is "investable, productive, secure," the currency strengthens — often forcefully. When the answer is "risk-off conflict," it weakens — often forcefully. This relationship has held across every regime change since the 1985 stabilization.
Second: monetary credibility, once earned, is durable. Israel's inflation regime has held for forty years across wars, intifadas, financial crises, COVID, and now another war. The 1985 commitment to non-monetization of the deficit was, in retrospect, the most important institutional decision in Israeli economic history.
Third: central-bank activism is a tool, not a doctrine. The Bank of Israel has intervened in either direction across the past two decades — dollar-buying through the Fischer era to slow appreciation, dollar-selling in October 2023 to defend against weakness, and now, in 2026, holding its fire while the currency strengthens against the institution's own reserve position. The tool is consistent; the deployment is not.
Fourth: the shekel is a geopolitical currency. Its largest moves — both directions — have come from war, ceasefire, regional escalation, and institutional crisis. The macroeconomic story is real. The geopolitical story is, in every cycle, larger.
The shekel at 2.80 in 2026 is, in the long arc of this history, the strongest Israel's currency has been within a generation of when the country could not pay grocery prices that held for an afternoon. That contrast — hyperinflation to AI-era strength inside forty years — is the single most underappreciated fact about the modern Israeli economy. It is also the foundation on which every current debate about currency, exports, inflation, and growth ultimately rests.