Report on the Investment of Israel's Foreign Exchange Reserves in 2021

The annual report on the investment of Israel's foreign exchange reserves for 2021 was published today.

Following are the main points in the report:



Level of the reserves

Israel's foreign exchange reserves at the end of 2021 were $213 billion, an increase of $39.7 billion over the course of the year, compared with the preceding year. The level of the reserves relative to GDP increased from 42.5 percent to 46.6 percent.


Sources of the change in the reserves

The increase in the reserves derived mainly from foreign exchange purchases by the Bank of Israel totaling $35 billion as part of the implementation of the monetary policy plan for the economy to deal with the COVID-19 crisis, and in addition from profits, revenue, and exchange rate and price differentials (mark to market) totaling $3 billion, and from private sector deposits totaling $2 billion.


Composition of assets in the reserves

As of the end of 2021, 66 percent of the reserves were invested in government assets, 18 percent in equities, 9 percent in spread assets, and 7 percent in corporate bonds.



Return on the portfolio in terms of the currency benchmark

In terms of the currency benchmark (a basket of currencies comprised primarily of the dollar and euro), the rate of return on the reserves portfolio in 2021 was 2.9 percent, over the past three years it has averaged 4.4 percent per year, and over the past five years it has averaged 3.2 percent per year (Table 1a).


Table 1a

Rate of return on the foreign exchange reserves portfolio, annual and multiyear perspectives, in terms of the currency benchmark, percent, annual terms



3 years

5 years

Reserves portfolio return




Basic benchmark return




Excess return








Return on the portfolio in shekel terms

The rate of return in shekel terms in 2021 was negative, at -2.9 percent, due to the appreciation of the shekel vis-à-vis the main currencies in which the reserves are held, at a rate of 5.7 percent.


Table 1b

Rate of return on the foreign exchange reserves portfolio, annual and multiyear perspectives, in terms of the shekel, percent, annual terms



3 years

5 years

Reserves portfolio return





Change in exchange rate of currency benchmark/shekel




A negative sign in the change of the exchange rate indicates appreciation of the shekel.



Contribution of active management in terms of the currency benchmark

The contribution of active portfolio management, measured by comparing the portfolio return with the risk-free portfolio (the basic benchmark) return, was 3.2 percent in 2021. This was contributed by equities—3.6 percent, primarily through the investment in US equities—2.5 percent, and was offset by duration— -0.6 percent.



Risk level in the portfolio

The portfolio’s risk level is the result of the share of risk assets in the portfolio as well as the volatility in financial markets. The portfolio’s volatility, which reflects its risk level, declined in 2021 compared to the peak it reached in the year before. This was due to the decline in the volatility of financial assets, and despite the increase in the share of equities in the portfolio. The standard deviation of the portfolio’s return, which measures this volatility, was 1.8 percent in 2021.


Update of the investment policy guidelines

The marked increase in the level of the reserves, which derives mainly from the Bank of Israel’s foreign exchange purchases as part of the implementation of the monetary policy, led the Bank to examine the need to adjust the goals on which the reserves investment policy is based and the policy’s characteristics. In view of the examination, the Monetary Committee approved a new version of the investment policy guidelines[2] in April 2021.


The main changes in the new version are: adjusting the investment policy goals so that a goal was set to achieve a return in shekel terms that, in the long term, will cover at least the financing cost of holding the reserves; measuring and reporting the portfolio return both in terms of the currency benchmark and in shekel terms; defining new principles for determining the currency benchmark composition; increasing the maximum risk constraint from a CVaR5% level of 475 basis points to a level of 900 basis points; increasing the maximum share of investment in equities from 17.5 percent to 27 percent of total reserves; increasing the maximum share of combined investment in equities and corporate bonds from 25 percent to 35 percent, and adding the possibility of investing in below investment grade (high yield) corporate bonds, up to 5 percent of total reserves.

The Monetary Committee approved the allocation for 2021 based on the new investment policy guidelines.

[2] See Box 1 in the report.​​