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.
