Israel's Early Banknotes - a currency created amid crisis

A currency is not just a medium of exchange, it is also one of the symbols of sovereignty of a state. At the time of its independence in 1948, Israel’s founders had to deal with this issue, along with more immediate threats such as the war declared by its Arab neighbors. There were a few problems – the name of the new Jewish state had not yet been decided. The Jewish state did not have the means to print its own currency, and foreign printers were not willing to print money for a country that didn’t yet exist. 

One of the Jewish banks, the Anglo-Palestine Bank, stepped in and placed an order for new banknotes with the American Banknote Company. The Bank of Israel site notes that this required considerable effort and persuasion by the Bank’s chairman[i]. These notes were for 1 Palestine Pound – the same currency as the British mandate of Palestine. The banknotes didn’t carry the words ‘legal tender’, as that would have made them notes of a foreign country, requiring approval from the US State Department. These notes were ordered on 26 April, 1948 – about 3 weeks before Israel declared independence (14 May, 1948), and reached Israel in July 1948 – after which the government declared them as legal tender.

In 1952, Israel adopted a new currency – the Israeli pound also known as the Lira, replacing the old Palestinian pound. These notes were also printed by the Anglo-Palestine Bank – which had been renamed to Bank Leumi le Israel – ‘the National Bank of Israel’ in 1950. The second set of Israeli banknotes was printed by Bank Leumi, these notes clearly mentioned ‘One Israel Pound’[ii].

The Anglo-Palestine Bank, and later Bank Leumi (as it remains to this day) was a commercial bank but served as a de-facto central bank for the State of Israel in its formative years. Israel’s central bank, the Bank of Israel, was set up in 1954 and subsequent banknote issues were all carried out by the Central Bank. Both the issues, of 1948 and 1952, were worded in English, Hebrew and Arabic (See picture above). 

In 1980, the Israeli pound was replaced by the Shekel – at the rate of 10 pounds to a shekel. While the pound had lost value over the past three decades, the reason for currency change was political – to shift away from colonial terminology. ‘Shekel’ was also the name of ancient money used in Biblical times. This shekel had a short run – from 1980-85 – it lost value quickly. 1970s were a time of global economic crisis, triggered by the oil shocks. In fact, the 1973 Arab-Israel War was the reason Arab countries started the oil blockade of 1973, causing the first oil shock. This pushed up price of oil from ~$3/barrel to ~$12/barrel. Later, the Islamic Revolution in Iran pushed up the prices past $40/barrel temporarily, causing widespread economic distress around the world. In addition to the high energy price, Israel also had to support high defense expenditure. In 1984, Israel's annual inflation touched a peak of 445% - an all time high! The shekel was no longer convenient for day to day transactions, and was replaced by the New Shekel – at the rate 1,000 old shekels for 1 new shekel. The new shekel remains the currency of Israel to present day.