The Central Bank of Israel announced today that it would not pay interest in deposits of West German marks by foreign residents, However, interest will be paid as heretofore on West German marks deposited by local residents for commercial purposes or stemming from German restitution payments, the bank said.
Israel is one of the countries where foreign residents sometimes hold large sums of “hot” money because of the high interest rates usually paid in this country. Most deposits as these are in United States dollars. However, due to the recent developments in the international money market, some depositors have switched their accounts to West German marks. The West German Government has announced that it will no longer accept this type of money for loans or investments to inhibit the flight of funds into West Germany. Since the Bank of Israel cannot earn interest on its marks, it cannot pay interest on such money, the bank’s announcement stated. The bank will also forbid currency credits in West German marks.
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