Bank of Israel foreign exchange reserves

Bank of Israel foreign exchange reserves are the foreign-currency assets held and managed by the Bank of Israel on behalf of the state. They are used as a liquidity buffer for emergencies, a financial-stability instrument, and a reserve portfolio invested abroad under guidelines set by the Monetary Committee.

Role in Israel’s financial system

Foreign exchange reserves are a central element of Israel’s external financial resilience. They consist mainly of foreign-currency financial assets and include reserve-related balances at the International Monetary Fund, such as Special Drawing Rights, the balance of New Arrangements to Borrow loans, and Israel’s reserve tranche at the IMF as reported in the Bank of Israel’s monthly reserve publications.^[4] The reserves are separate from private foreign-currency holdings in the banking system and from the foreign-currency assets of institutional investors, although transactions by the government, private sector, and domestic banks can affect the monthly reserve balance.

The Bank of Israel describes the reserves as an inventory that should be sufficient for the economy during a crisis or emergency, including events such as war or a natural disaster.^[5] In such circumstances, the reserves may remain one of the country’s main sources of foreign-currency financing. The reserves also support the central bank’s ability to act in the foreign exchange market if significant capital flows by residents or nonresidents threaten market stability and, through that channel, economic stability.^[1]

Reserve holdings can influence perceptions of sovereign strength. The Bank of Israel states that sizeable reserves are regarded by domestic and foreign financial institutions, companies, households, and rating agencies as an indicator of financial resilience and of the country’s ability to deal with economic, financial, and political shocks.^[1] This does not mean that reserves eliminate macroeconomic risk; rather, they provide a liquid foreign-currency buffer that can be deployed or maintained depending on policy circumstances.

The reserve concept is closely connected to other Israeli financial institutions and markets. The Ministry of Finance and government entities can have foreign-currency flows that affect the reserve balance, while domestic banks such as Bank Hapoalim, Bank Leumi, Israel Discount Bank, Mizrahi-Tefahot Bank, and First International Bank of Israel operate in the broader foreign exchange and payment environment. The reserves also intersect with monetary policy because foreign exchange purchases or sales, when conducted, appear in the reserve accounts and may require domestic liquidity-management operations.

Legal and governance framework

The Bank of Israel Law, 5770–2010 assigns the Bank of Israel responsibility for holding and managing the state’s foreign exchange reserves.^[5] Under the Bank’s framework, the Monetary Committee, chaired by the Governor and including public representatives, sets the investment-policy guidelines for the reserves. These guidelines cover the permitted assets, risk profile, and quantitative and qualitative limits on the assets in which the reserves may be invested.^[1]

The Monetary Committee approves the annual strategic allocation of the reserves on the recommendation of the Bank’s Markets Department. The strategic allocation sets the portfolio’s main characteristics, including currency composition, asset composition, and duration.^[1] The Markets Department then carries out the actual investment and ongoing management of the reserves in foreign financial assets within the parameters set by the Committee.^[1]

The legal framework also creates reporting obligations. The Bank of Israel’s foreign-exchange-reserves report page states that, under Section 40(d) of the Bank of Israel Law, the Monetary Committee publishes a report for the public on the currencies and securities that make up the reserves at year-end, to the extent that disclosure does not harm proper reserve management.^[3] The same page states that the report is published within three months of year-end and includes tables, graphs, liquidity and balance developments, return figures, risk measures, and comparisons with other managed portfolios.^[3]

Section 56 of the law requires the Monetary Committee to submit to the government and the Knesset Finance Committee a report on the principles used to determine the proper long-term level of reserves and on the guidelines for investment of the reserves in the previous year.^[1] This places the reserves within Israel’s public financial-governance framework, while leaving day-to-day investment execution with the central bank rather than with a commercial or fiscal authority.

Investment objectives and constraints

The reserves are managed according to a cautious central-bank investment approach. The Bank of Israel identifies three broad objectives: preserving the value of the reserves in terms of their uses, managing the reserves at a high level of liquidity, and earning a reasonable yield without breaching the first two principles.^[2] This hierarchy is important: the reserves are not managed like a return-maximizing sovereign wealth fund, because their primary function is liquidity and crisis capacity.

The Bank invests the reserves mainly in overseas financial markets, deposits with foreign banks, foreign government bonds, and other instruments permitted by the Bank of Israel Law.^[2] The annual report framework indicates that reserves are invested in a mix of liquid or relatively short-term assets and currencies that correspond to expected uses.^[2] Over time, the investment universe has included government and other bonds, corporate bonds, and equities, but the allocation is constrained by the risk profile approved by the Monetary Committee.

The investment-policy guidelines in the 2024 reserves report state that the policy is based on the Bank’s objectives and on proper fulfillment of its functions under law. Subject to those goals, the policy includes achieving a long-term shekel return that covers at least the financing cost of holding the reserves, maximizing medium-term return in terms of the currency benchmark within the risk profile, and maintaining high liquidity.^[5]

The Bank of Israel measures performance in both currency-benchmark terms and shekel terms.^[5] The currency benchmark is a basket of currencies used, alongside the shekel, to measure reserve returns. The 2024 reserves report describes the benchmark as the risk-free currency composition from the perspective of reserve-portfolio managers, because performance is measured relative to that currency mix.^[5]

Currency benchmark and asset allocation

The currency benchmark is central to the management of the reserves. It is not merely a reporting convention; it is also the reference point for judging investment decisions and risk. The Bank’s 2024 report states that the benchmark is a hypothetical portfolio based on known and fixed rules, and that the basic benchmark represents a low-risk investable-asset composition designed to meet the goal of high liquidity.^[5]

The 2024 Bank of Israel financial statements state that the asset and currency composition of the reserves is approved by the Monetary Committee at least annually, in line with the investment-policy targets and subject to the risk level determined by the Committee.^[6] The same financial statements say that, after a 2022 update to reserve-management guidelines, the currency benchmark was modified to include a shekel-return target intended to cover at least the long-term financing costs of the reserves.^[6]

At the end of 2024, the currency-benchmark target cited in the Bank’s financial statements was 62 percent U.S. dollar, 20 percent euro, 5 percent pound sterling, and 13 percent in other currencies.^[6] This mix reflects the reserve-currency character of major international currencies and the depth and liquidity of their asset markets. Because the reserves are reported in U.S. dollars, exchange-rate changes among the dollar, shekel, euro, sterling, and other benchmark currencies can materially affect the reported U.S.-dollar value of the portfolio even when no foreign exchange intervention takes place.

The asset allocation has changed as the reserve balance and the investment guidelines have evolved. The Bank’s 2025 reserves press release stated that, at the end of 2025, the reserves were allocated 65 percent to government and other bonds, 25 percent to equities, and 10 percent to corporate bonds.^[2] The equivalent end-2024 allocation was 67 percent in government bonds and other bonds, 23 percent in equities, and 10 percent in corporate bonds.^[5] These figures show that the reserves are predominantly fixed-income assets but include equity exposure within the approved risk framework.

Size and recent developments

The level of the reserves is published monthly by the Bank of Israel. In the Bank’s March 2026 publication, total foreign exchange reserves were reported at $228.271 billion for March 2026, compared with $234.545 billion in February 2026, $233.042 billion in January 2026, and $229.508 billion in December 2025.^[4] The March 2026 total consisted of $223.697 billion of reserves excluding IMF balances and $4.574 billion of reserves at the IMF.^[4]

For the full year 2025, the Bank reported that Israel’s foreign exchange reserves increased by about $14.9 billion to $229.5 billion. The Bank attributed the increase to capital gains on equity holdings, interest income from bond holdings, and exchange-rate differentials from the weakening of the U.S. dollar against benchmark currencies, partly offset by government withdrawals from its foreign-currency account managed at the Bank of Israel.^[2]

For 2024, the reserves increased by $9.875 billion, from $204.695 billion at the end of 2023 to $214.570 billion at the end of 2024, according to the Bank’s financial statements.^[6] The 2024 reserves report attributed the rise mainly to mark-to-market gains, including gains from equities and interest income from bonds, partly offset by bond losses and currency effects.^[5]

The Bank of Israel did not conduct foreign exchange purchase or sale operations during 2024, according to its 2024 reserves report.^[5] That detail is important because changes in the reserve balance can arise from market valuation, interest income, government flows, private-sector flows, and central-bank foreign exchange operations; a change in reserves is therefore not automatically evidence of intervention.

The Bank’s 2024 reserves report also discussed the “appropriate level” of reserves. It stated that the appropriate level had been set in 2015 at a range of $70–110 billion, reflecting the economy’s foreign-currency needs in an emergency, but that the range was later revised upward to $130–170 billion after growth in the Israeli economy, financial aggregates, foreign exchange trading volumes, nonresident holdings in the domestic capital market, and geopolitical risks.^[5]

Returns and risk measurement

The reserve portfolio’s return is reported in currency-benchmark terms and in shekel terms. In 2025, the Bank reported a return of 7.9 percent in terms of the currency benchmark.^[2] In 2024, the comparable return was 6.7 percent.^[5] The 2024 report listed annual currency-benchmark returns of 4.0 percent in 2020, 2.9 percent in 2021, negative 5.7 percent in 2022, 8.2 percent in 2023, and 6.7 percent in 2024.^[5]

Shekel returns can differ significantly from currency-benchmark returns because the shekel may appreciate or depreciate against the reserve-currency basket. In 2024, the return on the reserves in shekel terms was 4.8 percent, lower than the benchmark-currency return, because the shekel strengthened by 1.8 percent against the currency benchmark.^[5] In the report’s convention, a negative sign in the exchange-rate change indicates shekel appreciation.^[5]

Risk measurement focuses on the volatility and risk profile of the portfolio relative to its liquidity and policy objectives. The 2024 report stated that portfolio volatility moderated slightly and was influenced by lower volatility in equity and bond markets.^[5] Because the reserves include equities and corporate bonds in addition to government and other bonds, the portfolio’s market value can move with global interest rates, credit spreads, equity prices, and exchange rates.

The reserve portfolio therefore has several overlapping risk dimensions. Interest-rate risk arises from the duration of bond holdings. Equity risk arises from the allocation to global equities. Credit risk arises from corporate bonds, deposits, and non-sovereign issuers within approved limits. Currency risk arises from the relationship between the shekel, the U.S. dollar reporting currency, and the benchmark-currency basket. Liquidity risk is managed through the asset-allocation and benchmark framework, reflecting the reserves’ emergency function.

Relationship to monetary policy and foreign exchange operations

Foreign exchange reserves are not the same as the policy interest rate, but they are part of the broader toolkit of the central bank. The Bank of Israel interest rate is the main domestic monetary-policy instrument. Foreign exchange reserves, by contrast, represent foreign-currency assets that can support market functioning, balance-of-payments resilience, and emergency liquidity.

When the Bank of Israel purchases foreign currency, reserves increase, and when it sells foreign currency, reserves decrease, all else equal. The Bank’s annual and monthly publications separate intervention-related flows from valuation effects and other flows. For example, the 2024 financial statements showed no Bank of Israel foreign exchange purchases or sales in 2024, while the total reserve increase came from Bank of Israel portfolio gains and other items, government transfers, and private-sector items.^[6]

The reserve balance can also be affected by government foreign-currency activity. Government withdrawals from foreign-currency accounts reduced the 2025 increase in reserves, according to the Bank’s 2025 publication.^[2] Conversely, transfers by the government and national institutions from overseas contributed $1.548 billion to the 2024 reserve increase in the Bank’s financial statements.^[6]

Foreign exchange reserves also interact indirectly with Israeli money markets. When foreign exchange purchases are financed by creating shekel liquidity, the central bank may need to manage the domestic monetary effects through its broader liquidity-management framework, including instruments such as Makam. The accounting and policy treatment can vary by period and program, so individual episodes are best understood through the Bank’s monthly reserve releases, annual reports, and monetary-policy statements.

Reporting and interpretation

The Bank of Israel’s reserve data are available in monthly press releases and annual investment reports. Monthly releases provide the current reserve level, usually broken into reserves excluding IMF balances and reserves at the IMF.^[4] Annual reports provide a more detailed account of asset allocation, performance, risk, governance, and the strategic-allocation process.^[3]

Users of the data should distinguish between the stock of reserves and the sources of change. A rise in reserves can reflect foreign exchange purchases, government deposits, private-sector foreign-currency flows, interest income, equity gains, bond gains, or exchange-rate effects. A fall in reserves can reflect sales, withdrawals, losses on securities, currency movements, or other payments. The Bank’s “mark to market” category includes realized interest income, capital gains, changes in asset prices, and exchange-rate differentials vis-à-vis the U.S. dollar.^[5]

The reported U.S.-dollar total is a convenient international measure, but it is not the only lens through which the portfolio is managed. Because the reserves are evaluated in currency-benchmark terms and shekel terms, changes in the U.S.-dollar figure can overstate or understate the portfolio’s economic return from Israel’s perspective. For example, the weakening or strengthening of non-dollar reserve currencies against the dollar affects the reported dollar value even if the underlying foreign-currency assets are unchanged.

The reserves are therefore best read as a policy and balance-sheet indicator rather than as a simple profit-and-loss account. Their size, composition, and returns reflect a combination of precautionary policy, market conditions, liquidity objectives, legal constraints, and the Bank of Israel’s assessment of the appropriate reserve level for Israel’s economy.