The Central Bank of Jordan plays a vital role in maintaining economic stability through its various monetary policy tools. It seeks to control inflation, stabilize the currency, and regulate the banking sector in a way that supports national economic interests.
Definition
of the Central Bank of Jordan:
The Central
Bank of Jordan is the national institution responsible for managing monetary
policy in the Hashemite Kingdom of Jordan. It was established in 1964 as an
independent body with the goal of ensuring monetary and financial stability in
the country. The bank operates within a legal framework and is subject to
government oversight, but it retains independence in making monetary decisions.
Role of the
Central Bank of Jordan:
- Issuing the national currency
(Jordanian Dinar):
- It is the sole authority
authorized to issue paper and coin currency in Jordan.
- Maintaining monetary stability and
preserving the currency’s value:
- The bank works to maintain
exchange rate stability and safeguard the purchasing power of the dinar.
- Managing monetary policy:
- It uses various tools to achieve
objectives such as controlling inflation, supporting economic growth, and
ensuring financial system stability.
- Supervising the banking sector:
- The bank sets regulations for
commercial and Islamic banks and ensures the soundness of the banking
system.
- Managing foreign reserves:
- It maintains reserves of foreign
currencies and gold to support confidence in the national economy and the
local currency.
- Promoting financial stability:
- It takes measures to prevent
financial crises and respond to economic challenges.
Key Monetary
Policies of the Central Bank of Jordan:
- Expansionary or contractionary
monetary policy:
- The bank adjusts interest rates to
control liquidity based on economic conditions.
- Raising interest rates is used to
curb inflation and reduce liquidity.
- Lowering interest rates is used to
stimulate investment and increase spending.
- Discount rate:
- This rate is used to determine the
cost of borrowing for commercial banks, affecting market interest rates.
- Required reserve ratio:
- The bank requires commercial banks
to hold a certain percentage of their deposits, limiting excessive
lending.
- Open market operations:
- It buys or sells government
securities to regulate the money supply.
- Fixed exchange rate policy:
- Jordan adopts a fixed exchange
rate by pegging the dinar to the U.S. dollar, which helps maintain
exchange rate stability and investor confidence.
