have been printed sparingly, starting with the governorship of the late professor michael bruno, and in the periods of office of his successors professor jacob frenkel and dr. david klein, and to be continued under the newly appointed governor professor stanley fischer - the purchasing power of the banknotes in your pockets is maintained long term. this is a relatively novel experience for us in israel. the annual inflation rate since 1999 has averaged 1. 7 percent, i. e., close to the 2 percent midpoint of the target range of between one and three percent. you probably all remember the beginning of the 1980s, with two - and even three - digit inflation, which reached more than 500 percent a year. it is important to remember that the banknotes in your pockets are only part of the money supply or monetary base : the rest is the money in your current accounts. it is true that in the old law other objectives are mentioned, apart from that of preserving the value of the currency ( or in modern terminology, maintaining price stability ) - objectives such as a high rate of employment, and a high level of investment - without price stability being specifically granted priority. however, there is no contradiction between focusing on price stability on the one hand and objectives regarding employment and investment on the other. quite the opposite : price stability is a sine qua non for sustainable economic growth and for long - term high employment and buoyant investment. this said, to remove any possible doubt the law should be changed to specify price stability as the bank of israel's prime objective. it is worth noting that experience both here and abroad has shown that specific mention of price stability as the major purpose of the central bank increases its credibility, and the greater its credibility, the more freedom it has to support the other objective of long - term growth without jeopardizing price stability. in the area of independence in the use of monetary instruments too it would be well worth introducing some order in israel, and formalizing the bank's freedom of action. another considerable change required in this field relates to the exchange - rate regime. since the law was passed in 1954, the reality has changed completely : there is no foreign - currency control, the bank of israel has not intervened in the foreign - currency market for almost ten years, and the exchange rate is determined by the market forces of supply and demand. this situation should be reflected in the new law. with regard to a monetary council, the bank of israel

thousands of years, certainly since the first central bank was established - that of sweden which was established at the beginning of the seventeenth century - and started printing notes that served as legal tender. until 1985 the bank of israel was not independent, and it had to print money, at the government's request, to finance the government's deficit, with no upper limit ( they called it lending the government money, even if the government did not actually pay it back ). in 1985 - a milestone in israel's economy, with the introduction of the economic stabilization program that significantly lowered inflation, but only to between 15 percent and 20 percent a year, higher than the level in the advanced economies - the bank of israel law was amended, and the government was prohibited from asking the bank to print money for it. this legislative change ( known as the non - printing law ) is the only one introduced since the establishment of the bank in 1954. in contrast to us, many advanced and emerging economies have changed their central bank laws in the last two decades, all moving in the same direction in several major aspects : • price stability was set as the major objective of interest policy. this means that the central bank has full control over the rate at which money is printed, in most cases by means of control over the very short term rate of interest, known as the central bank interest rate, which is the cost of money. in addition, the central bank must help in the area of long - term growth, as long as price stability is maintained. • secondly, the independence of the central bank in its use of the policy instruments to achieve the target was clearly specified. the central bank must have complete freedom to exercise its discretion regarding the various instruments it has available to control the money supply in the economy and thereby to meet the price - stability target. • thirdly, the entity deciding on the central bank's policy was defined - a monetary council comprising professionals who are independent of the business and political establishment. • fourthly, a framework for reporting and transparency of the central bank's policy vis - a - vis the government, the legislature and the public was determined. in this context communication with the public is important as a means of increasing the effectiveness of the policy. in israel, the main target of the bank of israel's interest - rate policy is in the area of inflation, and since the beginning of the current decade it has been in the sphere of maintaining price stability. hence since banknotes