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.



Anonymous Onzlo said...

Im wondering about this, could it be that the government didn't unpeg the JD when it should have because of pressure from the US not to unpeg? Could it be that this is still the case?

1:30 PM  
Blogger Mohammed Raei said...

I think one or two gulf states unpegged, also I am sure Egypt did. Additionally, the whole Jordanian economy is not significant enough to affect the dollar exchange rate by more than 0.01%

2:20 AM  

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