Sunday, March 16, 2008

Jordanian Dinar

The government decided against the advice of many economists to stick to it's JD pegged to the US Dollar policy. That was a big mistake. The government should have switched to a basket of currencies rate when the Euro hit one JD.

The economists' proposal was to have the dollar make 20% of the basket. For the time being, the government can start with a basket of 80% dollar, 15% euro and 5% Yen. Then by shifting 10% from dollar to basket, every 6-9 months, in about 3-5 yrs we would have the ideal basket of 20% dollars and 80% other currencies.

This type of gradual shift would enable some sort of stability and would not cause a lot of losses to people who invested in dollars or Euros.

The time for action was a few months ago, but as they say better late than never. When the government acts, it will lose approx 1 billion dollars from it's reserves. But over the next 3-5 yrs the government will more than make it up from savings in purchases.


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