In a bold move to jolt its deteriorating economy out of triple-digit inflation and instill a near-mystical sense of national purpose in its increasingly materialistic society, Israel today announced a return to the skekel, the currency of the patriarch Abraham.
The conversion from the pound to the shekel, which begins Sunday, is also designed to stem the erosion of the pound against foreign currencies and wipe out as much as $130 million in "black capital" hoarded by income-tax evaders.
But government officials were at pains to stress that their principal purpose is to generate a change in national attitudes.
The currency change, they said, is intended to create a psychological chain effect that will rally Israel's 3.5 million citizens to a war on the country's crippling inflation.
The conversion "is not the main thing. It symbolizes the way we are taking. We are going back to our [biblical] source," Arnon Gafni, governor of Israel's Central Bank, said at a news conference. The source to which he referred is the ancient silver coin used more than three milleniums ago in the First Temple and with which Abraham purchased the Machpela Cave in Hebron for the burial of his wife Sarah, according to religious tradition. The Bible says Abraham paid 400 shekelim for the cave.
Introduction of the shekel, which will be exchanged at a rate of one shekel for 10 pounds, involves no devaluation of Israel's currency. When the new shekels begin circulating over the next three months, prices will simply be adjusted to match the 10-for one change.
Each new shekel will compromise 100 agorot. The pound, which floats against other currencies, is now worth 2.6 U.S. cents.
The government disclosed today that for two years it has been secretly minting and printing shekel coins and notes in anticipation of the changeover. In a country where secrets are a perishable commodity, the announcement took many economists and bankers by surprise.
Finance Minister Yigael Hurwitz announcing the decision following an unscheduled Cabinet meeting, called Israel's parallel "black capital" economy a "cancer on the body of the nation" that will be removed by harsh new procedures for reporting and monitoring income and assets.
Because Israel has no solid tradition of tax collection comparable to many other Western nations, evading taxes by self-employed workers and owners of small businesses has become almost an accepted way of life here.
Hurwitz warned that anyone failing to register their assets within three months will be prosecuted and fined heavily, and that violators will be prohibited from registering real estate and will be barred from leaving the country.
More to the point -- although Hurwitz found it unnecessary to mention it -- is the immediate cash loss that holders of untaxed or unreported currency face once the new bills are circulated. If the tax evaders attempt to convert their Israeli pounds for the new shekel, they will be asked embarrassing questions by tax collectors; if they opt not to risk the conversion procedure, their savings will become worthless.
Economic analysts tonight noted that, by itself, the currency conversion will bring little more than a technical change to Israel's economy. But the government obviously is hoping it will generate new public attitudes. One stimulus will be the smaller scale of figures involved in ordinary transactions because of the increased value of the shekel.
They pointed out that the Israeli pound -- commonly called "lira" by Israelis -- evolved from Bank of Palestine notes used during the British Mandate era preceding the founding of the Jewish state in 1978. Israel's tradition of vast amounts of untaxed currency and assets has often been attributed to a lack of identification with the currency, and a history of immigrant European Jews not respecting tax authorities in countries in which they were second-class citizens.
The shekel, with its strong biblical association, may help overcome some of the wariness that many Israelis hold toward tax authorities, analysts said.
The last Israeli currency reform was in 1977, when the government approved decontrol of the exchange rate and floated the pound in a free exchange market. d
Both the Histadrut, Israel's labor federation, and the opposition Labor Party tonight dismissed the conversion as a "cosmetic" step that will do little to combat inflation. The decision will go to Israel's parliament, the Knesset, next week, where the ruling Likud coalition is expected to pass it.
"The main idea is to change attitudes" Gafni said. He said the decision will save the government nearly $4 million in printing costs because of the constant devaluation of the Israeli pound. Two years ago, the exchange rate was 17 pounds to the dollar, compared to 38 now. Inflation has more than kept abreast of devaluation, with the rate running more than 100 percent a year.
Officials said banks will begin distributing new shekel notes on Sunday, in denominations of 5, 10, 50 and 100, with the 100-shekel note bearing the likeness of Prime Minister Menachem Begin's political mentor, Zeev Jabotinsky.
Originally, the shekel was a measure of weight used in bartering silver. In the Hasomonian era on the eve of the Roman destruction of the Second Temple, the coin of the Hebrews was stamped on one side with the words "Shekel Israel."