December 1948
Two ordinances of the Provisional Government the war it became the largest banking institution of Israel, dated August 16, 1948, established a new operating in Palestine. Under an agreement with currency and granted the Anglo-Palestine Ban\ the Provisional Government, the Ban\ has estab- Limited the sole right of issuing ban\ notes. Up lished an Issue Department in Tel-Aviv, completely to that date, the legal tender currency of Israel separated from its Banking Department and man- was the Palestine pound, issued by the Palestine aged by a special committee of directors appointed Currency Board under the Palestine Currency by the directors of the Ban\. The operations of Order of 1927. The Palestine pound is at par with the Issue Department and its profits and losses the pound sterling and covered by a 100 per cent are solely on Government account. The Ban\ also sterling reserve. Until February 22, 1948, Pales- acts as the sole banker and financial agent of the tine was part of the sterling area. Government, without receiving any remuneration The new currency is called the Israel pound and for these services and without paying any interest —li\e the Palestine pound—is divided into 1,000 on Government credit balances. The Agreement mils. Palestine currency notes were convertible into with the Government will remain in force until Israel pounds at par until September 15, 1948; June 30, 1951, unless terminated at an earlier date since that date, conversion has been possible only by the Government. at the discretion of the Ban\. Palestine coins con- The Palestine currency continues to circulate for tinue to circulate at par. The new ban\ notes the time being in the Arab portions of the country are to be covered by gold, balances in foreign cur- and in Trans-Jordan. The Trans-Jordan Govern- rencies approved by the Finance Minister, and ment, however, is reported to be planning the estab- Palestine currency notes, as well as by short-term lishment of its own currency. Treasury obligations and commercial paper re dis- The Ban\ Notes Ordinance, the Agreement be- counted or acquired from other ban\s. The first tween the Government and the Ban\, and the Cur- three of these items must cover at least half of the rency Ordinance are given below in English trans- total note circulation. lation* The Anglo-Palestine Ban\ Limited was originally incorporated in England, on February 27, 1902, * This translation was received from the Anglo-Palestine Bank under the title "Supplement A to the Official Gazette of by the Jewish Colonial Trust Limited. During the Government of Israel," dated Aug. 17, 1948.
BANK NOTES ORDINANCE—NO. 18 OF THE YEAR 5708—1948
The Provisional Council of State hereby enacts signing of the Agreement and the date of the sign- as follows: ing, shall be conclusive evidence of the contents of 1. Interpretation. In this Ordinance every expres- the notice. sion shall have the same meaning as it has in the 4. Confirmation of the Agreement. The Agreement text of the Agreement set out in the Schedule to and all its provisions shall be lawful in every re- this Ordinance. spect and each of the parties thereto shall be deemed 2. Authority to execute the Agreement. The Pro- to be empowered to do everything which he is re- visional Government and the Bank shall be author- quired or authorised to do in accordance therewith, ised to execute the Agreement in accordance with and any provision of law which is inconsistent with the text set out in the Schedule to this Ordinance the provisions of this Ordinance shall not apply to (the signed text is hereinafter called "the Agree- the Agreement and to the parties thereto. ment"). 5. Effect of charge and exemption from registration, 3. Proof of signature and date. A notice by the Cap. 22. The charge which is created by the Bank Finance Minister in the Official Gazette as to the by virtue of the Agreement shall be deemed to be
1464 FEDERAL RESERVE BULLETIN
Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis December 1948
NEW CURRENCY SYSTEM IN ISRAEL
a floating charge which is registered in accordance 13. Commencement. This Ordinance shall come with the Companies Ordinance, but the Bank shall into force immediately after midnight on the 12th be exempt from the duty, imposed upon it by the day of Ab, 5708 (August 17, 1948). said Ordinance, to register the charge. 14. Title. This Ordinance may be cited as the 6. Exemption from stamp duty. The Agreement Bank Notes Ordinance, 5708—1948. and the bank notes shall be exempt from all stamp duty. SCHEDULE 7. Exchange of bank notes for currency notes. Un- AN AGREEMENT made between the Provisional til the 11th day of Elul, 5708 (September 15, Government of the one part, and The Anglo- 1948), inclusive, every person shall be entitled to Palestine Bank Limited of the other part. deliver to the Issue Department currency notes in Palestine pounds and mils which have been issued 1. (a) In this Agreement the following expres- by the Palestine Currency Board, and to receive sions shall have the following meanings: in exchange therefor from the Issue Department, (1) "man" or "person" shall be construed as bank notes for the same amount in Israel pounds including any legal person; and mils. After the expiration of the said day, the (2) "the Bank" means the said Anglo-Palestine Issue Department shall no longer be liable to ex- Bank Limited, a company which was incorporated change bank notes for currency notes as aforesaid, on February 27, 1902, in England in accord- but it shall be entitled to do so in such cases and to ance with the English Companies Acts of the years such extent as the Committee shall deem fit at any 1862—1900, and registered as a foreign company time and from time to time. in Palestine in accordance with the Companies Ordi- 8. Mutilation of bank notes. Every person who nance (Cap. 22) and deemed to be registered in the wilfully defaces or tears or cuts or otherwise muti- State of Israel in accordance with sub-section (a) lates any bank note, shall be guilty of a misde- of section 20 of the Law and Administration Ordi- meanour, and shall be liable to imprisonment for nance, 5708—1948, and includes every successor three months or a fine of one hundred Israel pounds in title; or to both such penalties. (3) "other bank" means a company limited by 9. Barring of plea. No person shall be permitted shares which is recognized as a bank in accordance to plead that he did not know of the existence or with the Banking Ordinance, 1941, or any other the provisions of the Agreement and of this Ordi- Ordinance which is substituted therefor or is sup- nance. plementary thereto and any other person recognized 10. Proof of bank notes. A certificate which pur- as such by the Finance Minister for the purpose ports to have been given by the Finance Minister of this Agreement, provided that its paid up capital or a person authorised by him in writing in that is not less than fifty thousand Israel pounds; behalf and which states that any document whatso- (4) "Committee" means a committee which is ever which is attached to that certificate is a bank appointed in accordance with the provisions of note or a forged bank note shall in every civil or clause 11 (a); criminal proceeding and in every quasi-judicial pro- (5) "Banking Department" means the depart- ceeding be conclusive evidence of that fact, unless ment of the Bank in which all the banking business it is proved that the certificate was not given by the of the Bank, except the business of the Issue De- Finance Minister or a person authorised by him partment, is carried on; in writing in that behalf, or that the certificate was (6) "Issue Department" means the department not given in respect of that bank note. for the issue of bank notes which is set up by the 11. Inapplicability. The provisions of section 9(b) Bank in accordance with the provisions of this of the Law and Administration Ordinance, 5708— Agreement; 1948, shall not apply to this Ordinance. (7) "director" and "manager" shall have the 12. Enforcement and rules. The Finance Minister meanings assigned to those expressions in the is charged with the enforcement of this Ordinance, Hebrew text of the Companies Ordinance (Cap. and he may make rules in respect of any matter 22); relating to its enforcement. (8) "bank note" means a promissory note which
DECEMBER 1948 1465
Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis December 1948
NEW CURRENCY SYSTEM IN ISRAEL
is issued by the Bank in accordance with the pro- 5. The Bank shall separate completely the issue visions of this Agreement and according to which of bank notes from the other business of the Bank the Bank will pay to bearer the amount mentioned and shall carry on the management thereof sepa- therein. rately and distinctly from the other business of the (b) In this Agreement, the use of the singular Bank in a special department therefor, which the shall be deemed to include the plural and vice versa, Bank shall set up in Tel-Aviv and which shall be unless the context otherwise requires. called "The Issue Department of the Anglo-Pales- 2. At any time and from time to time the Bank tine Bank Limited." The Bank shall keep special shall be authorised— accounts in respect of everything concerning the (a) to issue and re-issue bank notes in such form business of the Issue Department, and such accounts and with such contents as the Bank shall from time shall be completely separated from the accounts of to time determine, with the approval of the Finance the Banking Department. Minister, for the following amounts:— 6. Except for the liabilities under the bank notes, (1) five hundred mils; the Bank shall not take upon itself any liability (2) one Israel pound; whatsoever in the Issue Department. (3) five Israel pounds; 7. In order to secure the rights of the holders of (4) ten Israel pounds; the bank notes, the Bank hereby charges by way of (5) fifty Israel pounds; a floating charge in favour of the holders of the (6) any other amount in Israel pounds or mils bank notes for the time being all the assets which or both, but not less than five hundred mils, which are in the hands of the Issue Department at any may be fixed by the Bank from time to time, with time and from time to time in accordance with the approval of the Finance Minister, and which is Clause 8. The Bank shall not pay out of those notified by the Finance Minister in the Official assets any other debt whatsoever, and the Bank Gazette. shall not be liable to pay any bank note whatsoever (b) To use, for the purpose of carrying out the from the rest of its assets. provisions of this clause, the bank notes which were prepared by the Bank before the establishment of 8. The Bank shall keep in the Issue Department the State of Israel and in which the unit of currency assets of any of the following descriptions, and only mentioned is "Palestine Pound" in Hebrew and of such descriptions, namely— corresponding expressions in the Arabic and English (a) gold, in bars or coins, which is situate in the languages. State of Israel or in any other country approved by 3. During the continuance in force of this Agree- the Finance Minister for this purpose, and which is ment— in the hands of any depositee approved by the (a) no person other than the Bank shall be per- Finance Minister for this purpose; mitted to issue any bank note, and (b) balances in such foreign currencies and with (b) the Government shall not issue currency such persons as may be approved by the Finance notes in amounts of R\c hundred mils or any larger Minister for this purpose; amount. (c) currency notes issued by the Palestine Cur- 4. The Government shall use its best endeavours rency Board; to ensure that during the continuance in force of (d) Treasury bills and other securities of the this Agreement, tender of a bank note shall be legal Government which are due for redemption within tender, for the amount stated therein, for the pay- one year from the date of their acquisition by the ment of any amount and for any purpose, and also Issue Department; that, from the expiration of the 11th day of Elul, (e) promissory notes and bills of exchange which 5708 (September 15, 1948) and so long as this are acquired from another bank in the State of Agreement remains in force, tender of a bank note Israel and rights arising out of loans granted to shall be the sole legal tender (except for the tender another bank in the State of Israel, provided that of coins and currency notes for amounts less than those promissory notes and bills of exchange and five hundred mils to the extent to which it is legal loans comply in all their details with the special tender). regulations for rediscounting and granting of loans
1466 FEDERAL RESERVE BULLETIN
Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis December 1948
NEW CURRENCY SYSTEM IN ISRAEL
which may be prescribed by the Committee with sons (who shall not at the time of their holding the approval of the Finance Minister: office be directors, managers or employees of the Provided that— Bank or of any other bank) as he shall deem fit, (1) the aggregate price of the assets which the for the period of one year from the date of their Bank actually holds of the descriptions of assets appointment, and, after they have been appointed, which the Bank is authorised to hold as aforesaid, those persons shall be invited to all the meetings shall be not less than the aggregate amount of all of the Committee and they may take part in all the bank notes which are then in circulation, and its meetings, but they shall not have the right to (2) the aggregate price of the assets which the vote thereat. Bank actually holds of the descriptions of assets (d) The Finance Minister may, at any time and specified in sub-clauses (a), (b) and (c), which from time to time, cancel any appointment made the Bank is authorised to hold as aforesaid, shall by him in accordance with the provisions of this not be less than half the aggregate amount of all clause, and at the termination of the appointment the bank notes which are then in circulation. for any reason whatsoever, he may renew the ap- 9. For the purposes of this Agreement the Issue pointment or appoint another person (who shall Department and the Banking Department of the not at the time of his holding office be a director Bank shall be deemed to be separate and distinct or manager or employee of the Bank or of any legal persons. Furthermore, the Banking Depart- other bank) in place of the person whose appoint- ment shall be deemed, for the purpose of Clause ment is terminated. 8(e), to be another bank. (e) The names of the members of the Committee 10. The Bank shall draw up each week, in a and of all persons who are appointed by the Finance form to be fixed by the Bank with the approval of Minister in accordance with the provisions of this the Finance Minister, a statement of the assets and clause and every change in the Committee and of liabilities of the Issue Department showing the the appointees, shall be published by the Finance state thereof at the close of business on Wednesday Minister in the first Official Gazette to appear of each week, and shall cause it to be published on after the appointments. Thursday in each week in such manner as may be (f) In connection with such matters as the prescribed by the Finance Minister from time to Finance Minister and the Committee shall recog- time: nize as being matters of major policy, the Commit- Provided that, in the event that Wednesday or tee shall be guided in its decisions by the opinion Thursday, or both of them, in any week is or are a of the Government, which shall be determined after day or days of rest fixed by law in the State of consultation between the Finance Minister and the Israel, the time for the drawing up of the statement Committee. and its publication shall be extended by the period 12. (a) The Committee shall appoint two per- of those days of rest. sons to be in charge of rediscounting in the Issue 11. (a) Upon the coming into force of this Department and also two substitutes for each of Agreement, and before the Issue Department be- them: gins to operate, the directors of the Bank shall ap- Provided that, as one of the two appointees and point a committee of directors which shall manage as the two substitutes, there shall be appointed the Issue Department throughout the time during the persons whom the Finance Minister directs the which this Agreement is in force, in compliance Committee to appoint, and the Finance Minister with all the provisions of this Agreement which may, at any time and from time to time, direct apply thereto. The Committee shall at any time the Committee to cancel any of the said appoint- be constituted of all the directors of the Bank resi- ments and to appoint other persons who shall be dent during that time in the State of Israel or in determined by him. any other place which is approved for that purpose (b) The persons for whose appointment the by the Finance Minister. Finance Minister has given directions in accord- (b) The Committee may not deal with any mat- ance with this clause shall not, at the time of their ters other than the matters of the Issue Department. holding office, be directors, managers or employees (c) The Finance Minister may appoint two per- of the Bank or of any other bank.
DECEMBER 1948 1467
Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis December 1948
NEW CURRENCY SYSTEM IN ISRAEL
(c) The task of the persons in charge of the re- cial agent of the Government and all its ministries discounting in the Issue Department shall be to and departments. The Bank shall not receive any decide on every proposal for rediscounting or a remuneration from the Government for its said loan which shall be made to the Issue Department services, and the Government shall not receive from and they shall be obliged to decide upon each such the Bank any interest on any credit balances in the proposal not later than at the end of the second accounts of the Government and all its ministries business day immediately following the day on and departments. which the proposal is made to the Issue Depart- 16. This Agreement shall remain in force until ment. The agreement of both persons in charge the 26th day of Sivan, 5711 (June 30, 1951) in- together shall be necessary for each positive deci- clusive, provided that the Government may termi- sion, and each person in charge who does not give nate it before then at the end of every quarter by his decision in time shall be deemed to have agreed giving to the Bank prior written notice of not less to the proposal. In fulfilment of their task the than half a year. persons in charge shall act at their discretion in 17. Upon the termination of this Agreement the each and every case, but within the scope of such Bank shall forthwith transfer, without any payment, restrictions as may be imposed by the special regula- to the Government or to a person appointed in tions mentioned in clause 8(e). that behalf by the Finance Minister— 13. (a) The operations of the Issue Department, (a) all the assets which are then in the hands and its profits and losses, shall be solely on Govern- of the Issue Department, and ment account. (b) all the assets and moneys which the Banking (b) At the end of the year 1948, and at the end Department then holds against the reserve as pro- of each year thereafter during the period of the vided above: Agreement and also at the end of the period of the Provided that at the time of the transfer as afore- Agreement, the Committee shall determine the said or before then the Government or a person profit or the loss of the Issue Department and the appointed by the Finance Minister shall take upon Bank shall transfer it to the credit or debit of the itself or himself, as the case may be, all the liabilities account of the reserve of the Issue Department of the Bank in respect of the bank notes which are which shall be kept in the Banking Department, then in circulation, and provided also that if there (c) The Finance Minister, after consultation with is then a debit balance in the reserve the Govern- the Committee, shall decide on the forms of invest- ment will see to it that such debit balance is paid ment of the amounts of the reserve and of the use to the Bank at the time of the transfer or before thereof. then. 14. The Government, after consultation with the 18. The Bank shall not transfer to another per- Committee, shall appoint an auditor, whose duty it son all or any of its rights or powers under this shall be to audit the accounts of the Issue Depart- Agreement. ment, and it shall give, from time to time, in con- 19. The residence of the Bank for the purposes of sultation with the Committee, written instructions jurisdiction in connection with this Agreement shall to the auditor. The Committee shall place at the be at the seat of the Government. disposal of the auditor, for the purpose of perusal and audit, all the books and documents of the IN WITNESS WHEREOF the parties hereto have Issue Department. set their hands in Tel-Aviv on the 12th day of 15. The Bank shall be the sole banker and finan- Ab, 5708 (August 17, 1948).
CURRENCY ORDINANCE—NO. 19 OF THE YEAR 5708—1948
The Provisional Council of State hereby enacts for any purpose, in the past or in the future, a as follows:— reference to a pound or Palestine Pound or Lirah 1. Unit of currency. The unit of currency shall Eretz Israelith or Lirah E.I. or LP. or Lirah is, or be the Israel pound divided into one thousand mils. has been, made, in writing or orally, or implied, 2. Adaptation of currency expressions. Wherever such reference shall be deemed to be a reference to
1468 FEDERAL RESERVE BULLETIN
Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis December 1948
NEW CURRENCY SYSTEM IN ISRAEL
an Israel pound, unless the provisions hereof are 6. Palestine Currency Order to cease to have effect; expressly excluded. coins. The Palestine Currency Order, 1927, shall 3. Tender of bank notes—legal tender. Tender of cease to have effect in any place in which this Ordi- a bank note issued in accordance with the Bank nance applies, but tender of coins issued thereunder Notes Ordinance, 5708—1948 shall be legal tender, shall continue to be legal tender as if each mil of the for the amount stated therein, for the payment of amount of mils stated on each of them constituted any amount and for any purpose. a thousandth part of an Israel pound and the pro- 4. Tender of currency notes—temporarily legal ten- visions of section 3 of the said Order shall continue der. Tender of a currency note issued by the Pales- to apply to them for all intents and purposes except tine Currency Board shall continue to be legal for the changes which ensue from the provisions of tender until the 12th day of Elul, 5708 (September the Law and Administration Ordinance, 5708— 15, 1948) inclusive, for the amount stated therein, 1948. for the payment of any amount and for any purpose 7. Enforcement and rules. The Finance Minister at the rate of one Palestine pound for one Israel is charged with the enforcement of this Ordinance pound. and may make rules in respect of every matter re- 5. Discontinuance of tender of currency notes as lating to its enforcement. legal tender. Immediately after the expiration of 8. Commencement. This Ordinance shall come the day mentioned in section 4, tender of the cur- into force immediately after midnight on the 12th rency notes mentioned therein shall cease to be day of Ab, 5708 (August 17, 1948). legal tender and those currency notes shall there- after be deemed to be foreign currency for all in- 9. Title. This Ordinance may be cited as the tents and purposes. Currency Ordinance, 5708—1948.
DECEMBER 1948 1469
Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis