The Dollar's Deep Roots in Israel's Economy

The US Dollar has played an outsized role in Israel's economic life since the country's founding in 1948. From being the unofficial benchmark for real estate and high-value transactions to serving as a refuge during periods of runaway inflation, the dollar's history in Israel is inseparable from the country's broader economic story.

The Era of the Israeli Lira (1948–1980)

When Israel declared independence, it initially used the Palestinian pound, quickly replacing it with the Israeli Lira (also called the Israeli pound). Through the 1950s and 1960s, Israel operated under a fixed exchange rate regime, pegging the lira to the British pound and later to the US dollar as American influence over global finance grew.

During this era, Israel received significant financial support from the United States, Jewish diaspora communities, and German reparations — much of it denominated in dollars. This made the dollar a natural reference point for the Israeli economy even at an early stage.

The Shekel Era Begins (1980)

By the late 1970s, Israel was experiencing serious inflation. In 1980, the government introduced the Israeli Shekel (the "old shekel"), replacing the lira at a rate of 10 lira per shekel. But this reform alone was not enough to address the underlying fiscal imbalances driving inflation.

The Hyperinflation Crisis (1979–1985)

Israel experienced one of the most severe hyperinflation episodes of any developed-adjacent economy in the 20th century. By the mid-1980s, annual inflation had reached several hundred percent per year. During this period, the US dollar became the de facto store of value for many Israelis. Citizens held savings in dollars, real estate was priced in dollars, and businesses quoted prices in dollars to avoid daily repricing in a rapidly depreciating local currency.

This "dollarization" of daily life — even without formally adopting the dollar — reflects just how deeply embedded the greenback became in Israeli economic culture.

The Economic Stabilization Plan of 1985 and the New Shekel

In 1985, Israel implemented a bold and largely successful Economic Stabilization Plan that slashed government spending, froze wages and prices temporarily, and introduced a new currency: the New Israeli Shekel (NIS), equal to 1,000 old shekels. Inflation plummeted almost immediately, and the New Shekel began a long journey toward becoming a genuinely stable, internationally respected currency.

From Pegged to Floating: The Shekel Comes of Age

Through the 1990s and into the 2000s, Israel gradually loosened the shekel's peg to the dollar, moving through a managed "exchange rate band" system before eventually allowing the shekel to float freely. This transition reflected Israel's growing economic maturity, its integration into global capital markets, and rising confidence in the Bank of Israel's ability to manage monetary policy independently.

The Dollar Today in Israel

Today, while the shekel floats freely and Israel has a robust, independent monetary policy, the dollar remains a significant reference currency. Many Israeli real estate transactions are still quoted in dollars. Technology companies — Israel's dominant export sector — earn revenues predominantly in dollars. And many Israelis still hold dollar savings as a hedge against shekel volatility.

  • Real estate: Commonly priced in USD, especially in Tel Aviv and Jerusalem
  • High-tech sector: Most revenues and salaries in global tech companies are dollar-denominated
  • Savings: A segment of the population keeps dollar deposits as a diversification tool
  • Imports: Many commodity imports, including oil, are priced in dollars globally

Conclusion

The story of the dollar in Israel is one of dependence, crisis, reform, and gradual independence. From the inflationary chaos of the early 1980s to the stable, sophisticated economy of today, the dollar has been a constant reference point — a mirror reflecting both Israel's vulnerabilities and its remarkable economic resilience.