½ New Sheqel – Israel

In 1985, Israel faced a severe economic crisis characterized by hyperinflation, which had been accelerating since the early 1970s and peaked at an annual rate of nearly 450%. This "inflationary whirlwind" was the result of a deep structural imbalance: massive government deficits, largely financed by printing money, to fund extensive social programs, a large public sector, and military expenditures. Indexation mechanisms in the economy, while protecting wages and savings, had created a vicious cycle where prices and wages chased each other upward, eroding the currency's value and public confidence.

The situation reached a breaking point, compelling the national unity government led by Shimon Peres to implement a drastic and comprehensive stabilization plan in July 1985. Known as the Economic Stabilization Plan, its core measures included a sharp, one-time devaluation of the shekel followed by its pegging to the U.S. dollar, severe cuts to government subsidies and spending, a temporary freeze on wages and prices, and a commitment to cease financing the deficit by printing money. Crucially, the plan was supported by a significant $1.5 billion emergency loan from the United States.

The plan was a painful but resounding success. It abruptly halted hyperinflation, restoring stability to the Israeli shekel and marking a fundamental shift from a government-dominated economy toward greater liberalization and market orientation. The 1985 crisis and its resolution are considered a watershed moment in Israel's economic history, establishing fiscal discipline and laying the foundation for future growth, transforming the shekel from a notoriously weak currency into a stable one.