The nomination is subject to the approval of the Turkel Committee on senior civil service appointments.
Leiderman is a professor of economics at Tel Aviv University who completed his PhD at the University of Chicago. He specializes in inflation targeting, exchange rate regimes, dollarization and capital inflows to emerging market economies. He headed the Bank of Israel's Research Department in the past.
Leiderman was mentioned before as one of the leading candidates to replace Stanley Fischer, who stepped down earlier this month, alongside Prof. Manuel Trajtenberg and Deputy Bank of Israel Governor Dr. Karnit Flug, the who enjoyed Fischer's support.
Netanyahu and Lapid eventually decided to appoint Prof. Jacob Frenkel, but the nomination ran into difficulties from day one. At first there was criticism over Frenkel's appointment for a third term, contradicting the Bank of Israel Law.
Some mentioned the scathing State Comptroller Report which looked into Frenkel's term. Following that report, he was forced to return to the state's coffers NIS 238,000 (about $66,000) which he received as board and lodging expenses and for the redemption of unused vacation days.
Finally, an embarrassing affair from Frenkel's past popped up, which involved his detention at the Hong Kong Airport in 2006 on suspicion of failing to pay for a product taken from the duty free shop.
The various difficulties prompted Frenkel on Monday to drop his bid to lead the Bank of Israel.
At this stage, Leiderman and Flug were the two main candidates for the position. Flug, who has been serving as the acting central bank chief since Fischer stepped down, said following the decision to appoint Leiderman that she would quit her job at the bank after helping Leiderman assume his new role, adding that she wished him the best of luck.
Criticized low interest rate environment
Prof. Leo Leiderman was born in Argentina and immigrated to Israel at the age of 17. He has two daughters and three grandchildren. He will be returning to the Bank of Israel after working there from 1991 to 2000. During those years he served as head of the bank's Research Division and as a senior advisor to the governor, who was Jacob Frenkel at the time.
Since retiring from the central bank, Leiderman has been teaching at Tel Aviv University and served as Bank Hapoalim's chief economist.
"I am excited to get back to the Bank of Israel and I will work to help Israel's economy in the challenges it faces," Leiderman said in a statement.
He inherits an economy that is slowing due to the global downturn, tame inflation, and a benchmark interest rate of 1.25 percent. At the same time, Israel's shekel is at a nearly two-year high against the dollar.
"Judging by his recent comments regarding the Bank of Israel's monetary policy, it seems like Leiderman has a more hawkish stance than the current MPC (monetary policy committee) members," said Yonnie Fanning, an analyst at ILS Brokers.
Leiderman, who spent 10 years at the Bank of Israel in the 1990s, initially supported the steep interest rate cuts at the outset of the global financial crisis but the past few years he has said rates were too low.
Reuters contributed to this report