and gradually making the exchange - rate regime more flexible. the restriction on investment abroad or in foreign currency in israel by institutional investors ( provident and pension funds, and life insurance schemes ), which currently stands at 5 percent of their assets, is yet to be removed. there is no reason to delay this measure, which is required in order to finally make the the nis fully convertible. concurrently, it is possible to abolish the exchange - rate band. in any event, it will be impossible to defend it, should the need arise, and there is no point waiting and deluding people on that score, allowing them to make decisions on the basis of that erroneous assumption. these changes will not have a dramatic effect on the economy if they are introduced at a time when the foreign - currency market is not exceptionally volatile, and they will make monetary policy more efficient. this is because it will not be necessary to make monetary policy subservient to attaining targets in the exchange - rate sphere - as we had to do in the past - and which could conflict with price stability. thus, capital flows will be less influenced by short - term,'speculative'considerations, and will contribute to israel's financial stability in the long term. long experience, and logic, have taught us that speculation and shocks in the foreign - currency market are an inevitable by - product of exchange - rate regimes that are not subject to the discipline of the market. • another obstacle exists in the form of the quantitative ceiling imposed on the issue of treasury bills. this ceiling currently obliges us to administer most of our monetary policy visa - vis the banks. interest - rate changes are introduced via shifts in the money supply, which are currently caused by changes in the extent of banks'deposits with the bank of israel. if we were to introduce these changes in the capital market by changing the quantity of treasury bills we would expand the market markedly, strengthen the substitutes for the public's deposits with banks and bank credit, and contribute to reducing the spread between the borrowing and lending rates. the spread would narrow not only because of the higher borrowing rate but also because of the lower lending rate. a deep and liquid market for treasury bills will make it easier to create a parallel market for commercial papers, which constitutes a substitute for borrowers for short - term bank credit. • a third obstacle is endemic in the absence of any financial intermediation outside the banks. the reference here is to financial services involved

in raising short - and long - term capital, whether on a one - off basis or in the framework of investment funds ; the management of asset and liabilities portfolios for individuals or firms, and intermediation in the capital marketall of them outside the banking system. in order to create significant nonbanking intermediation it is necessary to return to the problem of the current concentration of the financial services, and introduce the measures we have mentioned on various occasions for dispersing the foci of financial power in israel's economy. because of the process of globalization that israel is currently undergoing, this involves building cooperation with international financial institutions rather than reducing the existing size of commercial banks. why would this make monetary policy more efficient? because the aim of monetary policy is to influence the public's economic decisions. the existence of developed nonbank financial intermediation enables the interest rate to have a direct effect, not only via the banks, on the behavior of savers and borrowers. a better balance between banking and nonbanking intermediation also improves management by the business sector, because the public, which provides firms with capital sources via the capital market, has long - term considerations, while the banks, which provide firms with loans, have short - term ones. the combined outcome is that monetary policy is provided with another channel of influence, which could produce more rapid results than in a situation where it operates solely via the banking channel. this promotes lower fluctuations in the interest rate and greater stability in the financial markets. this stability is one of the major preconditions for sustainable economic growth. conclusion opening the financial markets is necessary for the benefit of both the individual and the business sector, not only because of the advantages ensuing from a more competitive market. this policy also enables more efficient use to be made of policy instruments, and everyone benefits from that. note in this context that the process of the structural change of the financial markets, only part of which has been mentioned here, has come to an almost complete halt. the reasons for this should be examined, the necessary conclusions drawn, and steps taken to return to the implementation of the changes required for a modern country that wishes to integrate in the global economy.