Strong dinar — losers and gainers

During a relatively short period of time, the exchange rate of the US dollar rose sharply against the currencies of most countries of the world, especially the European euro and the Japanese yen.

The main reason for this exceptional strength of the dollar is that the American economy finally overcame its crisis, recovered in a strong way and resumed growth at a high rate, while the economies of most other countries continue to stagnate or slow down.

Since the dinar is pegged to the dollar, the strength of the dollar caused a similar strength of the dinar. If the dollar rose due to economic reasons, the dinar rose due to its connection to the dollar, irrespective of the state of the Jordanian economy. 

The fact that the dinar has risen by around 10 per cent against the euro and the yen has, of course its consequences. Some are good, others are bad.

Certain local parties will benefit from a strong dinar, others will be hurt. Both have to adapt themselves to the new currency environment, volatile as it may be.

One major entity that is most affected by a strong dinar is the Treasury. On the positive side, the value of all public debt and debt service denominated in foreign currencies, except for the dollar, will decline in terms of dinars and dollars.

On the negative side the Treasury will lose on the dinar proceeds of received foreign grants, except those received in dollars.

Importers will benefit as the cost of goods imported from Europe, Japan and elsewhere will decline while they, the importers, are not under pressure to reflect the saving on their domestic selling prices, which are already absorbed by the market.

On the other hand, some industries will be hurt as the proceeds of their exports will drop in terms of dinars, especially the mining industry which produces for export.

Other industries may benefit from a strong dinar if they depend heavily on imported raw material. A strong dollar is bad for the country’s trade balance as it boosts imports and tax exports.

The strong dinar contributed towards lowering inflation rate, especially when a major share of public and private consumption depends heavily on imported items.

The tourism sector is definitely on the disadvantage side. Its ability to attract foreign tourists will be reduced as the cost of a vacation in Jordan will be relatively higher as calculated by foreign tourists who think in terms of their own currencies.

A strong dinar will not serve Jordan’s competitiveness in tourism. 

Jordanians travelling abroad will benefit from a strong dinar.

The monetary authorities are unable to interfere to prevent the rise or the decline of the dinar exchange rate. The dinar has to go hand in hand with the exchange rate of the dollar.

Finally, I am afraid that a strong dinar will not serve the economic adjustment programme Jordan currently implementing. On the contrary, a strong dinar renders some objectives more difficult to attain.