Shekel vs. Dollar: Guess Who’s Winning? (And Why)

Israel has just been through almost three years of continuous war on several fronts. Tens of thousands of reservists have spent hundreds of days out of work, fighting Israel’s enemies – not to mention entire parts of the country (especially the Galilee and Golan) economically paralyzed due to incessant rocket fire. And yet… amazingly, the shekel has been strengthening mightily against the dollar that’s now at its lowest level since the 1990s vis-à-vis the shekel (well under three shekels to the dollar). Is this another miracle from the Holy Land or something else entirely?

No miracle here, just two basic economic phenomena: one short-to-medium term, the other long-term. The former is something for Israel to be proud of; the latter, for America to hang its head in (economic) shame.

Despite Israel’s large outlays on the battlefield, somewhat paradoxically the country’s prowess there (separate from diplomatic failures) has hugely boosted its arms industry. Israeli military exports have skyrocketed, with a backlog of orders from around the world that will keep its high-tech (war) factories humming for many years to come.

Such an export wave, of course, strengthens the shekel vis-à-vis the dollar, with waves of dollars (the international currency for trade payments) entering the country. Global tech investment, multibillion dollar defense contracts, as well as natural gas export deals all involve foreign currency entering Israel, most of which has to be converted to shekels (to pay salaries, taxes etc.), thereby increasing its value compared to the dollar.

Over the longer term, however, quite a different statistic is even more important for national economic health: a country’s public debt to GDP ratio. Simply put, that’s the amount of money the government (not private individuals or companies) owes to borrowers (e.g., purchasers of U.S. bonds etc.) compared to the amount of product and services that the country produces.

Every nation has some level of public debt to finance investment in infrastructure and services (e.g., highways; research & development). Israel and the United States are no different in principle, with both having significant public debt. But “significant” is a rather flexible concept. And indeed, their debt burdens tell very different stories.

Israel’s debt to GDP ratio today is approximately 69%. That’s an increase from 62% over the past three years due to the costs of the “Iron Swords” war. Still, by world standards that turns out to be very low; the world’s public (government) percentage is 94% (as of early 2026). Where does the U.S. fit in here?

As of early 2026, America’s total government debt-to-GDP ratio reached 125%! To put it in dollar terms, the United States owes its debtors $39 trillion!! (Again, that’s not “billion” but rather “trillion”.) Many of its borrowers, of course, are U.S. citizens – but other countries (especially China) hold huge sums of American debt as well. However, who receives payment on the debt is less important than how much debt has to be paid off.

The comparison between Israel and the United States is stark. Israel’s public debt has been decreasing steadily since the crisis years of the 1980s into the early 1990s, when its ratio was close to 100%. By 2019, though, through astute economic management it had fallen to about 60%, then rose temporarily during the Covid shock to roughly 72%, dropping back to around 60% through strong growth and budgetary savings. Overall, then, Israel is situated in the mid range of advanced economies rather than at the high risk extreme.

Not so the U.S., where the picture is far more worrisome. Unlike Israel, its present debt ratio is not a temporary wartime spike; rather, it follows decades of tax cuts, entitlement commitments (e.g., Social Security, Medicare etc.), and repeated fiscal stimulus episodes (e.g., post-Covid) layered one on top of each other.

How can the U.S. get away with such a heavy debt burden? The answer lies partly in its unique status as the source of the world’s primary reserve currency – the dollar. But that doesn’t make the economic arithmetic disappear. America still has to pay a huge, annual sum to its debtors – and that outlay rises from year to year, further increasing its overall debt.

What does this say about the Israeli economy? After all, the shekel is a small economy currency with limited global use. Nevertheless, when people say that “the shekel is so much stronger than the dollar,” they are on to something beyond pure economic statistics. Investors in the shekel embody confidence that the country’s messy politics and difficult security situation are eminently manageable.

What’s the source of this confidence? For one, ever since Israel’s economic implosion in the early 1980s when inflation skyrocketed to 400%, its macro-economy has been basically run by the Bank of Israel that has kept inflation under tight control, slowly but steadily amassing a large stock of foreign exchange reserves. By February 2026, it accumulated an astonishing reserve of $234.553 billion – far more than enough to carry the country through any short-term disaster, whether economic, environmental, or military. (The country’s annual GDP is well over $600 billion.)

To be sure, a very strong currency is a mixed blessing. On the one hand, it makes imported goods and foreign travel cheaper (keeping inflation low), also lowering the cost of paying off the country’s foreign currency debt. On the other hand, it lowers exporters’ profit margins, especially in older industries that can’t easily introduce efficiencies. This widens internal gaps between the advanced “high-tech” and financial sectors, and other more traditional ones.

The bottom line (literally and figuratively): in the foreseeable future the shekel will most probably remain stronger than Israel’s problematic security headlines would suggest. Compounding this are the U.S. dollar’s woes. Although it will retain its dominant position in global finance, its decreasing exchange value reflects doubts about America’s willingness to tighten its fiscal belt. The big irony in all this is that Israel, the smaller, vulnerable country is fiscally more “sound” than its closest ally, the world’s (still) economic superpower.