Bank of Israel

07.10.07

The Annual Report of the Bank of Israel Currency Department shows that currency in circulation, i.e., banknotes and coins in the hands of the public and in bank tills, totaled NIS 25.5 billion at the end of 2006, compared to NIS 24.4 billion at the end of 2005, an increase of 4.6 percent. The average rate of growth in the period 2001 to 2006 was 10 percent, and so the lower rate may have been a correction to the relatively higher rate––of 17.5 percent––in previous years. The main factors behind this rise were the higher use of cash for transactions, growth in the economy and an increase in population in 2006.

The year 2006 saw a further increase of cash withdrawals from machines: the number of ATMs increased as did the number of cash dispensers––cash-withdrawal machines owned by private companies and operated by the businesses where they are sited. At the same time there have been newer options of cash withdrawals through retail chains and at gas stations. The banks also introduced automatic machines for depositing cash.

According to the Bank's data, banknotes continue to comprise 96 percent of the value of currency in circulation, and coins make up the balance. More than half (51 percent) of coins in circulation were 10 agorot coins, used, inter alia, for change on local public transport. The NIS 1 coins, many of which are used for parking meters and vending machines, constituted 23 percent of all coins in circulation in 2006. The share of higher value coins­­––NIS 5 and NIS 10––fell, with each accounting for only 3 percent of total coins in circulation.

A not inconsiderable number of coins in circulation get lost, and so the actual use is less than that recorded. Loss is a natural consequence of heavy daily usage of coins, which are a low-value means of payment. The rate of loss is inversely proportional to the value and size of the coin. Estimates for the loss of coins in circulation range between 41 percent and 77 percent for the 5-agorot, 10-agorot, ½-sheqel and NIS 1 coins.

The use of the NIS 200 banknote is becoming more and more prominent, accounting for 18 percent of total notes in circulation, up from 17 percent, and they are more widely distributed through ATMs. The most widely used banknote continues to be the NIS 100 note––accounting for 53 percent of all banknotes in circulation––and its rate of usage did not fall despite the greater use of the NIS 200 note. The proportion of NIS 50 banknotes out of total notes in circulation continued falling last year, from 20 percent to 19 percent, while the use of the NIS 20 note remained at 10 percent.

Supply of notes is made up of meeting demand for a particular note, and replacing old notes lost through wear and tear. Supply of NIS 20 note is devoted almost entirely to replacing old notes due to its absence from ATMs––the ATM serving as a conduit to introduce new banknotes into circulation––its high usage in markets and the public's lack of safekeeping. To improve the life of the NIS 20 banknote, the Currency Department released an improved banknote in 2006 printed on higher quality paper with additional coating. As part of this improved quality, the Currency Department will be issuing the next issue of NIS 20 notes based on polypropylene, a polymer which is becoming more popular in many countries due to its durability.

In recent years the rate of banks' depositing banknotes and coins at the Bank of Israel has diminished, due to a fall in the rate of deposit on the one hand and the increase in cash circulation on the other. Hence the time spent in circulation has increased, which has also pushed up the rate of wear and tear of notes deposited at the Bank of Israel. This can be explained, inter alia, by the banks' more efficient working practices in recent years: aiming to reduce the costs of transporting cash to the Bank of Israel, the commercial banks have purchased their own counting and sorting machines, increasing the circulation of banknotes in the economy.

In 2006, the Currency Department of the Bank of Israel prepared a plan to improve the quality of banknotes in circulation through a change in policy of cash operations. The aim of the policy is to maintain a high quality of cash in circulation, while providing a higher level of service to customers of the department. The plan will be introduced gradually, starting in 2008.

As part of the plan to reduce the public's cash operating costs, the department will introduce coins already packaged in rolls. This will bring uniformity in coin packaging––the coins will be delivered from the minters abroad already wrapped in rolls––and a saving in costs and labor input, as well as convenience and safety in transporting. At the same time, the department plans on making banks deposit their coins in canisters, which would make banks' packaging more efficient and will improve safety in the Bank of Israel's sorting and counting process.

The Bank of Israel requested permission from the government, as required by law, to abolish the 5-agorot coin, due to low usage, high production costs––up to three times the face value of the coin––and the fact that it is not used in packing meters and vending machines. According to a survey carried out, 80 percent of the public approve abolishing this coin.

In 2006 the Currency Department continued with the process of introducing a new NIS 2 coin. The issue process will be completed in the next few months and the coin is expected to be brought into circulation by the end of 2007. The addition of the NIS 2 coin will make cash payments more efficient, particularly for the heaviest users, and will reduce spending on currency issues, so that expenditure on manufacturing and maintenance of cash will fall.

In 2006, the NIS 200 notes began to feature the signatures of the Governor of the Bank, Professor Stanley Fischer and the Chairman of the Bank of Israel Advisory Council, Aharon Fogel.

In 2006, the Bank of Israel issued three commemorative coins and one set of uncirculated coins.

Following the government's decision to privatize the Israel Coins and Medals Corporation, which according to the law holds the exclusive rights to commemorative and uncirculated coin issues, there is a need to amend the law accordingly. Hence discussions were held between the Bank of Israel, the Government Companies Authority, and the Israel Coins and Medals Corporation, in order to establish the most suitable conditions for the company's sale. The process is almost complete and the Ministry of Finance will begin the privatization shortly.

In 2006 the Currency Department began planning a new banknote issue series, which includes many aspects, including changing the banknote design, improved security features and quality of banknote paper. The new series is planned to be issued in the next 4-5 years.

In 2006, the Currency Department published Banknotes and Coins of Israel, 1927-2006, a book that presents the history of Israel's coins and notes from the British Mandate period until the present period, including details––from size and weight (of coins), design and name of designer to date of issue and last date of use––of all coins and banknotes issued.