Bank of Israel Governor Stanley Fischer told the Herzliya Conference in early February that the International Monetary Fund (IMF) must develop a set of international regulations pertaining to foreign currency intervention.

Fischer said that while very clear rules applied to commodities trading, there were no regulations or limits on "individual countries' intervention in foreign currency markets."

According to Fischer, several countries that had weathered the global financial crisis comparatively well were challenged in managing their economic policies in light of enormous inflow of capital.

Israel is generally considered to be one of those countries, and the BOI has for months followed a policy of buying US dollars in an attempt to check the shekel's appreciation against the American currency, with mixed success. Fischer said that the shekel was being pushed upward by a growing gap between Israel's short-term debt and that of countries where rates had not been raised.

In addition to currency interventions, the BOI has also instituted a policy of restrictive steps on currency trading. "These restrictions, while not elegant, are vital," Fischer told the conference.

The Bank of Israel's steps to intervene in foreign currency trading to check the dollar's continued slide against the shekel resulted in foreign financial institutions losing millions of dollars.

The BOI's latest intervention pumped up the shekel-dollar exchange rate from NIS 3.54/$ to NIS 3.63/$, meaning that banks and other financial institutions that had been betting that the shekel would continue to appreciate against the US currency closed the week's trading at a loss.

Such financial institutions had made "hundreds of millions of dollars" through their speculation in the shekel-dollar exchange rate over the course of 2010 while quite a few players – mostly small and mid-size currency traders – have taken a hit.

Fischer's latest steps to curb transactions in foreign currency derivatives included an order that required that swaps of foreign currency and forward transactions exceeding $10 million in a single day must be reported. Furthermore, the BOI now requires non-residents making transactions in Treasury bills and short-terms government bonds that top NIS 10 million a day to report all such transactions.

What would international Forex regulation mean for the average retail currency trader?  Good or bad?  Stay tuned...