Durring the late 1970's prices quoted in terms of the Israeli currency, the shekel, rose so fast that the grocery stores listed their prices in terms of the U.S. dollar and provided customers with the dollar-shekel conversion tables that they updated daily. Although people continued to buy goods and services and make loans using shekels, many Israeli citizens converted shekels to dollars to avoid a reduction in their wealth due to inflation. In what way did the U.S. dollar function as money in Israel during this period?
The U.S. dollar was the standard currency in Israel.
During the late 1970s, the U.S. dollar was used as a reference currency in Israel due to the rapid rise in prices quoted in terms of the Israeli currency, the shekel. Although the primary currency in use was still the shekel, the U.S. dollar served as a measuring tool for value and stability.
The U.S. dollar functioned as a medium of exchange by being accepted as a benchmark for pricing goods and services in grocery stores. Instead of listing prices directly in shekels, grocery stores quoted prices in dollars and provided daily updated conversion tables to the customers. This way, the U.S. dollar acted as a common currency for customers and made it easier for them to compare prices and understand the value of the goods they were purchasing.
Additionally, the U.S. dollar served as a store of value for many Israeli citizens. Because of the high inflation and the decrease in the purchasing power of the shekel, people converted their shekels into dollars to preserve their wealth. By holding dollars, they could avoid losing value and protect themselves from the negative effects of inflation.
Furthermore, the U.S. dollar functioned as a unit of account, as it was used to measure and record the value of goods, services, and financial transactions. Even though people continued to conduct their day-to-day transactions using shekels, the U.S. dollar provided a stable and universally recognized reference point for determining the value of different items.
It is important to note, however, that while the U.S. dollar played a significant role as a pricing benchmark and a store of value during this period in Israel, it did not replace the shekel as the official currency. The shekel remained the legal tender and continued to be used in most transactions.