Jacob Frenkel has withdrawn his bid to be the next governor of the Bank of Israel following allegations of theft.

In July, Israeli newspapers reported that Mr Frenkel had been accused of shoplifting at a duty-free shop in Hong Kong airport in 2006. Mr Frenkel was detained but later released without charges. Mr Frenkel called the incident a “misunderstanding” and said that the Hong Kong police apologised.

"I have been humiliated," Mr Frenkel said in an interview on Israeli television station Channel 2. The leading economist said that since his nomination, “the dam broke and people tried to tarnish my professional reputation and my integrity. This is an attempt to burn me at the stake.”

Israeli Prime Minister Benjamin Netanyahu and Finance Minister Yair Lapid released a statement saying that Mr Frenkel’s withdrawal was a "direct result of an atmosphere of vilifying someone without giving him the right to defend himself."

They added that Mr Frenkel "could have brought great benefit to the Israeli economy amid the global financial crisis… in the atmosphere that exists today, we are not far from the day when no one will want to come near public life."

Mr Frenkel served two terms as governor of the Bank of Israel between 1991 and 2000.