Jordanian dinar

What Is the Jordanian Dinar?

The Jordanian dinar (JOD) is the official currency of the Hashemite Kingdom of Jordan. As a key component of the nation's international finance framework, the Jordanian dinar symbolizes the country's economic stability and financial autonomy. Its ISO 4217 code is JOD. The dinar is subdivided into 100 qirsh (also known as piastres) or 1,000 fils. While fils are rarely used in daily transactions, monetary amounts are still frequently expressed to three decimal places to represent them.³⁰

History and Origin

The Jordanian dinar was first introduced in 1949 and officially became the kingdom's legal tender in July 1950, replacing the Palestinian pound.²⁹ This transition marked a crucial step toward Jordan's financial independence after gaining sovereignty. Initially, the Jordan Currency Board was responsible for issuing the new currency. However, the Central Bank of Jordan (CBJ) was established in 1959 and took over the sole authority for currency issuance in 1964.²⁸

A significant moment in the dinar's history occurred on October 23, 1995, when the Central Bank of Jordan officially pegged the Jordanian dinar directly to the U.S. dollar.²⁷ This decision replaced a previous linkage to a basket of international currencies and was part of an economic reform program designed to enhance monetary stability, encourage economic growth, and attract foreign investments.²⁵, ²⁶ The peg aimed to eliminate speculation regarding the currency's potential devaluation and improve its parity with other major currencies.²⁴

Key Takeaways

• The Jordanian dinar (JOD) is the official currency of Jordan, serving as a symbol of its financial independence.
• It replaced the Palestinian pound and has been issued by the Central Bank of Jordan since 1964.
• Since October 1995, the Jordanian dinar has maintained a fixed exchange rate against the U.S. dollar.
• This peg provides monetary and financial stability, helping to control inflation and attract investment.
• The Jordanian dinar is also widely used in the West Bank alongside the Israeli Shekel.

Formula and Calculation

The Jordanian dinar maintains a fixed exchange rate against the U.S. dollar. While the Central Bank of Jordan buys and sells U.S. dollars at slightly different rates, the official peg is approximately 0.709 Jordanian dinars per U.S. dollar.²³ This means that 1 U.S. dollar is roughly equivalent to 0.709 JOD. Conversely, 1 Jordanian dinar is approximately equivalent to 1.41 U.S. dollars.²²

The calculation for converting U.S. dollars to Jordanian dinars (JOD) is:

And for converting Jordanian dinars to U.S. dollars (USD):

It's important to note that these figures represent the official pegged rate, and minor fluctuations might occur due to market dynamics or bank spreads.

Interpreting the Jordanian Dinar

The stability of the Jordanian dinar is a cornerstone of Jordan's economic policy. The fixed exchange rate ensures predictability for businesses and individuals, reducing currency risk for international trade and investment.²¹ The Central Bank of Jordan's commitment to the peg is a critical aspect of maintaining monetary policy and contributes to overall financial stability within the kingdom.¹⁹, ²⁰

This stability is vital for investor confidence and helps to control imported inflation, providing a reliable foundation for long-term financial and economic planning.¹⁸ The Central Bank of Jordan actively manages its foreign currency reserves to support this peg and shield the economy from external shocks.¹⁷

Hypothetical Example

Consider a Jordanian student, Omar, studying in the United States who receives a stipend of $1,000 USD from his family in Jordan. To use this money for his expenses in the U.S., Omar needs to convert the Jordanian dinars he receives into U.S. dollars.

Assuming the fixed exchange rate of 1 JOD = 1.41 USD:

1. Omar's family sends 709 JOD from Jordan (since 709 JOD * 1.41 USD/JOD ≈ 1000 USD).
2. Upon receiving the 709 JOD, Omar checks the current official exchange rate, which is fixed at approximately 1.41 USD per JOD.
3. He calculates the U.S. dollar equivalent: (709 \text{ JOD} \times 1.41 \text{ USD/JOD} = 999.69 \text{ USD}).

This example illustrates how the fixed peg simplifies currency conversions, providing a clear and predictable value for the Jordanian dinar in relation to the U.S. dollar, which is beneficial for international transactions and for assessing purchasing power.

Practical Applications

The Jordanian dinar's fixed peg to the U.S. dollar has several practical applications in Jordan's economy and financial markets:

• Trade and Investment: The stable exchange rate reduces currency risk for importers and exporters, fostering consistent international trade relationships. It also makes Jordan an attractive destination for foreign direct investment by providing predictability regarding the repatriation of earnings.
  *¹⁵, ¹⁶ Monetary Policy Management: The Central Bank of Jordan's primary objective is to maintain monetary stability, and the fixed exchange rate plays a central role in achieving this. The Central Bank can focus its monetary policy tools, such as setting interest rates, to manage domestic economic conditions while ensuring the stability of the dinar.
  *¹⁴ Public Confidence: The consistent value of the Jordanian dinar instills confidence among citizens and businesses, encouraging the use and holding of the local currency for savings and transactions rather than seeking more stable foreign currencies.
  *¹³ Debt Management: For a country with external debt often denominated in U.S. dollars, a stable local currency exchange rate can help manage debt servicing costs by providing predictable repayment amounts. The International Monetary Fund (IMF) regularly assesses Jordan's economic stability, including the sustainability of its exchange rate peg.

¹¹, ¹²## Limitations and Criticisms

While the fixed exchange rate regime of the Jordanian dinar offers significant stability, it also presents certain limitations and faces criticisms:

• Loss of Monetary Policy Independence: Pegging a currency to a major reserve currency like the U.S. dollar means that the local central bank sacrifices a degree of independent monetary policy flexibility. T⁹, ¹⁰he Central Bank of Jordan must align its interest rate decisions and other monetary tools to support the peg, potentially limiting its ability to respond solely to domestic economic needs such as stimulating growth or curbing inflation if they diverge from U.S. economic trends.
  *⁸ Vulnerability to Anchor Currency Shocks: A fixed exchange rate makes the Jordanian economy more susceptible to economic shocks originating in the U.S. For instance, significant shifts in U.S. monetary policy or economic performance could impact Jordan, regardless of its own domestic conditions.
  *⁷ Impact on Competitiveness: Some argue that a fixed peg can make a country's exports less competitive if the anchor currency appreciates significantly against other global currencies. This can make Jordanian goods more expensive in international markets. However, the peg's advocates contend that Jordan's exports are more influenced by bilateral trade agreements and regional stability than by the exchange rate.
  *⁶ Need for Robust Foreign Reserves: Maintaining a fixed exchange rate requires substantial foreign currency reserves to defend the peg against speculative attacks or economic downturns. The Central Bank of Jordan must continuously manage and accumulate reserves, which ties up capital that could potentially be used for other investments.

⁵## Jordanian Dinar vs. Fixed Exchange Rate

The Jordanian dinar is the tangible currency unit itself, while a fixed exchange rate is a specific type of exchange rate regime adopted for that currency. The Jordanian dinar operates under a fixed exchange rate system, where its value is intentionally maintained at a constant ratio against another currency, specifically the U.S. dollar.

The term "Jordanian dinar" refers to the physical and digital medium of exchange, the unit of account, and the store of value used in Jordan. "Fixed exchange rate," on the other hand, describes the deliberate policy choice by the monetary authority (the Central Bank of Jordan) to stabilize the external value of the dinar by pegging it to another currency. This policy ensures that the value of the Jordanian dinar does not fluctuate freely based on market forces like supply and demand, as would be the case with a floating exchange rate. The fixed exchange rate is the system or mechanism by which the Jordanian dinar's external value is managed.

FAQs

What is the ISO code for the Jordanian Dinar?

The ISO 4217 code for the Jordanian dinar is JOD.

Is the Jordanian Dinar pegged to any other currency?

Yes, the Jordanian dinar has been officially pegged to the U.S. dollar since October 1995.

⁴### Why did Jordan peg its currency to the U.S. dollar?
Jordan pegged the dinar to the U.S. dollar primarily to achieve monetary stability, foster economic growth, and attract foreign investments by providing exchange rate predictability.

², ³### Where else is the Jordanian Dinar used?
In addition to Jordan, the Jordanian dinar is also widely accepted and used in the West Bank alongside the Israeli Shekel.

¹### Who issues the Jordanian Dinar?
The Central Bank of Jordan (CBJ) is the sole authority responsible for issuing the Jordanian dinar.