Thursday, October 22nd, 2009, 1:36 am Amman Time
The Jordan Times
To peg or not to peg
Jordan’s decision to peg the exchange rate of the dinar to the US dollar has been questioned on and off, without any change to the country’s financial policy.
Having the Jordanian dinar pegged to the dollar has become well enshrined, with many considering that, on balance, it is the best currency policy the country can have.
Now that the US currency is under pressure and losing value vis-à-vis other major currencies, the Jordanian dinar also feels the pressure.
While a depressed currency rate promotes exports, it also increases the cost of imports, and since Jordan imports more than it exports, it would seem, to the layperson, that the country has more to lose from a low exchange rate unless, of course, the country imports more from the US and less from Europe where the euro has been growing in value ever since its introduction in the international financial markets.
On the other hand, exporting more, not only to the US but also to EU countries where Jordanian prices would be more competitive due to the low exchange rate of the dinar, would be really beneficial, if it were to happen.
Whichever way, the exchange rate needs to be reviewed periodically, especially if those concerned and in the know are alerted ahead of time of the turn the US currency takes.
Better yet, it might be a good idea to have the dinar tied to a basket of currencies and thus prevent a dramatic drop that would affect the livelihood of so many.
No policy should be carved in stone; those responsible for the financial policy of the country should have the wisdom to review theirs to the benefit of the citizens.
The Jordan Times
To peg or not to peg
Jordan’s decision to peg the exchange rate of the dinar to the US dollar has been questioned on and off, without any change to the country’s financial policy.
Having the Jordanian dinar pegged to the dollar has become well enshrined, with many considering that, on balance, it is the best currency policy the country can have.
Now that the US currency is under pressure and losing value vis-à-vis other major currencies, the Jordanian dinar also feels the pressure.
While a depressed currency rate promotes exports, it also increases the cost of imports, and since Jordan imports more than it exports, it would seem, to the layperson, that the country has more to lose from a low exchange rate unless, of course, the country imports more from the US and less from Europe where the euro has been growing in value ever since its introduction in the international financial markets.
On the other hand, exporting more, not only to the US but also to EU countries where Jordanian prices would be more competitive due to the low exchange rate of the dinar, would be really beneficial, if it were to happen.
Whichever way, the exchange rate needs to be reviewed periodically, especially if those concerned and in the know are alerted ahead of time of the turn the US currency takes.
Better yet, it might be a good idea to have the dinar tied to a basket of currencies and thus prevent a dramatic drop that would affect the livelihood of so many.
No policy should be carved in stone; those responsible for the financial policy of the country should have the wisdom to review theirs to the benefit of the citizens.