In three days October 6-8, in hectic foreign currency trading on the worlds' foreign exchange markets the dollar plunged against the Japanese yen to JY 111. It was down by a quarter since its peak of above JY 140 in August. It was not altogether quite clear what caused the carnage. A plausible explanation was that massive selling of yen by hedge funds who had borrowed at low interest rates to finance buying higher yielding dollar securities, was a major contributing factor.

In recent years Israel moved away from controls over foreign currency holdings and its capital markets were wide open to be buffeted by selling of securities on the Tel-Aviv Stock Exchange and the subsequent repurchase of dollars, to speculative transactions involving the New Israeli Shekel (NIS), and to the unwinding of cheap foreign loans taken out by its own business community. In the event all of the ocurrences took place. However, there was neither a collapse of the exchange market nor was there any intervention. At least for the time being a major test had been passed with some but not major damage. In the first three weeks of October the NIS lost 13.6% of its value against the dollar but 30.6% against the rampaging Japanese Yen. Bank of Israel Governor Yaakov Frenkel and Finance Minister Yaakov Ne'eman did not leave the Washington IMF Conference and the word was " that the Bank of Israel would not interfere" in foreign currency trading should the NIS go into a free fall. The estimate is that the Bank of Israel may act by raising the interest rate or by selling foreign currency to the public if the sharp devaluation increases.

But there are profound worries at the country's leading banks - not of a collapse on the order of what is happening in Japan, but about the fate of loans they gave for foreign currency purchases, about overexposure to bad loans, about the global crisis, about the drying up of international capital reserves, about growing competition, over the sharp devaluation, and especially over the deepening slowdown in many areas of the economy, including real estate, diamonds, retailing and tourism.

The weaker shekel may have turned into a bonus for Israel high tech industries. Many CEOs of exporting high-tech companies had complained that the shekel was overvalued since its value was not even linked to increments in the rising costs local in salaries and other expenses.

A weaker shekel will help raise the profits of Israel's high technology companies, but a slowing world economy will offset the gains for the electronics industry, according to the Manufacturers Association. A survey conducted by the trade group showed industry leaders think the economic crisis could lead to a 20-50 percent drop in the sales of electronics products and services.

However, software companies should be able to maintain a 20-25 percent growth rate in export sales, said Amiram Shor, CEO of Malal Computers Ltd. He said a slowing economy would increase demand for software and data processing products. Israel's key technology sector is geared almost entirely to overseas markets. Avner Raz, CEO of Elisra Electronic Systems Ltd., a defense electronics unit of Tadiran Ltd. (NYSE:TAD), said the devaluation would be good for his company on the whole because it was geared to exports.

The recent stormy events may return in one form or another and the Israeli Shekel, which we have felt was overvalued in any case, may may be forced to retreat even further. The cost to the local economy may be a few ticks up on the inflationary ladder but all those who have a stake in Israel should be heartened by the economy's resilience and further encouraged by the resumption of the Peace Process.