The new shekel, also spelled sheqel, is the official currency of Israel. It is the third currency to be used since the formation of the State of Israel in 1948. The shekel has a subdivision of 100 agora. The name of the currency derives from an ancient measure of weight that equalled approximately 12 grams. The new shekel is a freely convertible currency with no capital controls. The floating exchange system was implemented in 1992, seven years after being introduced. The Bank of Israel issues the new and maintains the value of the new shekel.
When Israel was formed in 1948, their first currency was the Israeli lira. It was introduced pegged to the pound sterling on par. In the 1960s, a law was enacted to change the name of the currency to the shekel, but the change was not executed until 1980 when the shekel was introduced as a new currency at a rate of 1 shekel: 10 lira. At the time, the economy of Israel suffered from very high inflation, so the shekel was reintroduced in 1985 at a rate of 1 new shekel: 1000 old shekels, or shekalim. The new shekel became freely convertible in 2003, and in 2008, the new shekel became fully convertible when the CLS Bank International announced that all payment instructions could be settled with the Israeli new shekel.
The Bank of Israel has been the central bank of the nation since 1954. It is located in Jerusalem with a branch in Tel Aviv. The bank is an independent government entity having the objective of maintaining price stability, foster economic growth and increase employment. In 1978, the Bank of Israel was given the additional duty of controlling foreign exchange.
The Israeli new shekel is circulated through a series of coins and banknotes. Coins are minted in South Korea, while banknotes are printed in Switzerland. Coin denominations are 10 and 50 agora and 1, 2, 5 and 10 shekels. Banknote denominations are 20, 50, 100 and 200 shekels.
The economy of Israeli has been stable in recent years. Although the Bank of Israel regards inflation-control one of the most important issues for economic stability, it has not always be historically able to stop rapid inflation. A major reason for this is that the economy of Israel is dependent on imports, and the inflation of trading partners causes internal inflation.