AMMAN, Nov. 23 -- The Central Bank of Jordan has pegged the Jordanian dinar directly to the U.S. dollar and fixed dinar-dollar exchange rates, while leaving the market open for other currencies, banking sources said Thursday. The measure effectively replaced the linkage between the dinar and 'a basket of international currencies,' one banking expert said, including the British pound, German mark, French franc and Japanese yen. The change took effect in early November, shortly after the Middle East and North Africa Economic Summit closed in Amman, Jordan's capital. A Jordanian Central Bank circular sent to all banks and money- changers said that the exchange rate was fixed at 708/710 fils to the U. S. dollar (a dinar has 1,000 fils) and that all transactions should take place within this range. The sources called the move highly logical, given that more than half of the central bank's foreign exchange reserves (of about $600 million) and nearly 80 percent of Jordanian bank deposits are in U.S. dollars, which the kingdom also uses most of the time to pay for its imports. The United States is also Jordan's largest supplier of goods, accounting for about $400 million, or about 15 percent, of Jordanian imports in 1995. Finance Minister Basel Jardaneh, in an implicit reference to strengthening Jordanian-U.S. economic ties, said: 'Economic activities in the kingdom confirm that the relationship between the dinar and the dollar is the most important.' The United States, with Russia a cosponsor of the Middle East peace process, has encouraged U.S. businesses to invest in Jordan, to the extent of offering such incentives as partial financing to firms that bring U.S. capital and technology into the kingdom.
The dinar-dollar link is part of a package of measures the bank undertook this year, including declaring the dinar a convertible currency for current spending and allowing Jordanian commercial banks to extend non-dinar loans for up to 50 percent of their foreign currency deposits. Bankers and economic experts agreed that pegging the dinar to the dollar has eliminated room for recurring market speculation that the Jordanian currency was headed for devaluation. More important, the move has improved parity between the dinar and most European and Gulf currencies, which are also linked with the U.S. currency, they said. Mohammad Said Nabulsi, is expected to resign as the bank's governor on Jan. 1, after overseeing Jordan's monetary stability and recovery from the dinar devaluation of 1988-89. He has always complained that during his several decades of service with the bank, he had not seen a 'single month' in his career without rumors sweeping the market that the dinar would be devalued. In 1988-89, the kingdom's foreign debts of $8.3 billion choked the economy. The exchange rate was about $3 to the dinar in early 1988; it was stabilized after devaluation at about $1.4 by early 1991. Jordan, after 1989 restructuring prescribed by the International Monetary Fund, brought down foreign debts to about $5.5 billion by the beginning of 1995. Its overall credit rating has risen as a result. The bank used to 'suggest' daily exchange rates for foreign currencies and has not intervened in the market since 1991, because the margin of foreign exchange dealings was always less than 2 to 3 percent from the bank-suggested rates. The bank itself had set a 10 percent ceiling for the differential, as the point when it would intervene in the market. One tool available to the bank to check the conversion of dinar deposits into dollars is the issuance of three-month and six-month certificates of deposits, which yield about 8 percent to 8.5 percent interest, about 1 to 1.5 percentage points above the return on the U.S. dollar. The bank continues to issue the certificates monthly. This has led to a squeeze on liquidity at the Amman Financial Market. But Nabulsi dismissed such concerns outright, saying the bank is not concerned with 'speculative' activities that do not contribute to economic growth.
