The Israeli government decided today to knock three zeros off its currency, the shekel, in the face of soaring inflation that has constantly necessitated the printing of money with higher denominations.
The currency changeover, to take place Sept. 4, is the second in five years. It is described by government officials as purely a technical step involving no devaluation and not taken in conjunction with other economic changes.
In 1980, when the shekel was substituted for 10 Israeli pounds, steps also were taken to wipe out "black capital" hoarded by evaders of income taxes. The exchange rate then was 4 shekels to the dollar, but it gradually deteriorated until it was devalued and frozen at a maximum of 1,500 shekels to the dollar in an emergency economic program announced July 1.
Finance Minister Yitzhak Modai told a press conference tonight that the new shekel -- worth 1,000 of the current shekels -- was necessary because "the cash registers could not contain those big figures anymore with all the zeros."
He added, "There'll be fewer millionaires as a result of this." One million current shekels are equivalent to less than $700.
Modai said the new shekel will circulate side by side with the current shekel, and that the new currency will become the sole legal tender only after Jan. 1, 1987.
Modai said the decision to introduce a new currency was made secretly last December, when the Bank of Israel said that the government would either have to order 50,000-shekel notes or change the currency. Ministry officials said that the changeover announcement was delayed until an ample supply of the new bills and coins arrived from a contracting mint in the Netherlands.
Finance Ministry officials said that the changeover will cost $5 million in new printing and minting costs, but that $4 million a year will be saved because the new coins will be smaller.
Modai said an effort will be made to educate arriving tourists about the 16-month-long transition period so that they will not be duped into paying new shekels for prices quoted in the old shekels.
Critics of the government's economic policies had said that a currency changeover would, in effect, be an admission that inflation was uncontrollable, and that eventually the zeros would return to the face of later shekels.
The Cabinet decision followed an announcement 10 days ago of a 27.5 percent inflation rate for July, the steepest climb in the consumer price index in the country's history. Inflation is already more than 150 percent this year and is expected to exceed 300 percent.
Meanwhile, in the wake of bitter exchanges last week by Likud and Labor Party Cabinet ministers over settlements in the occupied West Bank, Prime Minister Shimon Peres issued a stern warning today that such exchanges could lead to the breakup of the national-unity coalition government.
Peres' warning appeared to be directed at Trade Minister Ariel Sharon, who had accused the Labor ministers of reenacting the British government's preindependence policy of restricting land purchases by Jews. Sharon's remarks came after six members of parliament were evicted from a house they were attempting to settle in the Arab market district of Hebron.
According to Cabinet Secretary Yosi Beilin, Peres said that "a minister who comes out in opposition to government decisions, its activities, another minister or the prime minister henceforth takes upon himself responsibility for the very existence of the government."
Under the coalition agreement, Cabinet ministers cannot be fired. Peres' warning referred to the tradition of collective Cabinet responsibility, in which, technically, a prime minister is obliged to resign and call new elections if opposed by his own Cabinet ministers.