Between Private Property Rights and National Preferences: The Early Years of the Bank of Israel
Forthcoming, Israel Affairs
36 Pages Posted: 25 Mar 2013
Date Written: March 22, 2013
The history of the Bank of Israel is often told as a story that leads from servitude to independence. According to this conception, the bank was as a weak and marginal institution during the developmental period of the state, and it turned into an independent actor in the neoliberal period. In this paper I argue that the portrayal of the bank as marginal during the developing period fail to recognize the essential role the bank play in contributing to the capacity of the state to allocate credit more effectively. I argue that Bank of Israel provided the state with market compatible instruments in order to govern the banking system and depoliticized the allocation of credit. The establishment of the bank had two effects on the political economy of Israel. First, it enables the government to weaken its dependence on the Histadrut as an agent of development and it enabled it to nurture linkages with the private sector. The paper is based on original research based on primary sources.
Keywords: central banking, developing countries, Israel, preferential credit policy, bureaucracy, infrastructural power, private property rights, Israel
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