Fifty Years of External Finance via State of Israel Non-Negotiable Bonds

Foreign Exchange Activity Department, Assets and Liabilities Unit
September 6, 2004


Yehiel Rehavi, Asher Weingarten


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The purpose of this paper is to describe the activity of the Israel Bonds organization during the last fifty years and to summarize the changes that have occurred in the financial instruments that the organization offers from the aspects of quantity, bond type and cost of borrowing.

Israel Bonds has been operating for over fifty years, mainly among individuals and Jewish communities abroad. The organization is extremely important for the State of Israel as a source of external financing, particularly in periods when the government has difficulty in raising foreign exchange from external sources. Since its inception, Israel Bonds has raised $24 billion for the Israeli government, repaid $15 billion, and paid another $9.5 billion in interest. In 2003 Israel Bonds raised a record amount of $1.5 billion, while redemptions in the last four years amounted to two thirds of the redemptions of the entire previous decade. Cumulative interest payments up to the end of 2003 exceeded net sales (the Bond balance) by 0.4 billion dollars.

Annual sales increases over the years, was accompanied by increasingly market dictated pricing. Until the end of the 1980s a fixed interest rate of 4 percent was paid to individuals, unconnected to USD interest rates or changes in them. During the 1990s, especially after the introduction and development of additional sources for the government's external borrowing, the pricing of the Bonds began to match the yields on the government's other borrowing instruments.

Israel Bonds is unique to the State of Israel and no other country has a similar organization. During recent years, when the Israeli government had difficulty in borrowing large amounts of money abroad, Israel Bonds proved itself as an organization that reacts rapidly to an increase in the government's foreign exchange requirements. The target population for the Bonds has changed over the years. During the initial years of the State, the organization operated among Jews, principally in the USA, who had a direct or indirect connection with the Holocaust in Europe. Today, the majority of Bond sales are directed at the next generation, whose considerations are based largely on the financial return that they are offered.

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