Professor Sreemati Mitter, in A History of Money in Palestine: From the 1900s to the Present, her 2011 Harvard University doctoral dissertation in history, asserts that in 1948 the new Israeli government froze the bank accounts of Palestinian Arabs and never returned their money. (This author cannot judge the validity of her assertion.) In 1948 the Palestinian currency, called the Palestinian pound, was tied to the British pound on a 1:1 basis. Using old and incomplete historical records and data, Professor Mitter estimates that in 1948 the frozen bank accounts contained about £6,070,500. She uses five different calculators on the website www.measuringworth.com to obtain five different estimates, in terms of British pounds, for the value in 2011 of the approximately £6,070,500 that she asserts were frozen in 1948.
Suppose the bank accounts in question had continued to earn interest. To compute their present value, we propose using an alternative method, namely, the compound interest formula given below, to compute the present value of a historic sum.
P = H x (1 + i) raised to the power n, where
P = present value
H = historic sum
i = average interest rate per year
n = number of years
Current data on the website www.measuringworth.com is available only through 2018. The website measuringworth.com gives data for both short-term interest rates and long-term interest rates from 1948 to 2018, inclusive. For the 71 years between 1948 and 2018, inclusive, we calculate that the average short-term interest rate was 5.73%, and the average long-term interest rate was 6.32%. Since we don’t know the nature of the estimated £6,070,500 in the bank accounts frozen in 1948, we assume that half of the money, or £3,035,250, would have earned short-term interest, and the other half would have earned long -term interest.
Initially, we compute the present value, in 2018, of £3,035,250 in 1948 if this money had earned the average short-term interest rate of 5.73% between 1948 and 2018, inclusive. Substituting H = £3,035,250, i = 5.73%, n = 71, we obtain
P (short-term in 2018) = £158,587,501.
Next, we compute the present value, in 2018, of £3,035,250 in 1948 if these funds had earned the average long-term interest rate of 6.32% between 1948 and 2018, inclusive. Substituting H = £3,035,250, i = 6.32%, n = 71, we obtain
P (long-term in 2018) = £282,191,998.
The total present value in 2018 would equal
P (in 2018) = £158,587,501 + £282,191,998 = £440,779,499.
(For comparison, results for the total present value in 2018 obtained from five different calculators provided by the website www.measuringworth.com range from a low of £189,000,000 to a high of £1,100,000,000, with an average value of £573,800,000.)
We add one additional year to obtain an estimated present value in 2019 for the bank accounts frozen in 1948. In 2019 the average short-term interest rate in the UK for the 10 months from March through December of 2019 was 0.79%. The average long-term interest rate in the UK for all of 2019 was 0.88%, calculated from data on the website https://ycharts.com/indicators/united_kingdom_long_term_interest_rates. For simplicity, we use the higher interest rate of 0.88% for both long-term and short-term funds in 2019.
P (in 2019) = P (in 2018) (1 + 0.0088) = £440,779,499 (1.0088) = £444,658,359.
Perhaps Professor Mitter’s scholarship will motivate Israeli and American economic historians to pursue parallel research in estimating the values of Jewish bank accounts confiscated by Arab governments after 1948 when Jewish refugees from Arab countries were forced to flee for their lives to Israel and America. Israeli and American scholars may also challenge the validity of her assertion.