Growing external debt, declining remittance income and foreign
aid, and shrinking foreign currency reserves made Jordanian
citizens wary of keeping their savings in dinars. King Hussein's
severance of Jordan's official ties to the West Bank in July 1988
added to the worries of both foreign investors and citizens about
the long-term viability of the economy. These concerns culminated
in a financial crisis in 1988 as Jordanians--especially those of
Palestinian origin--tried to exchange dinars for foreign currencies
and to move their savings outside the country, circumventing a
Central Bank restriction that limited individual Jordanians to
sending no more than JD5,000 worth of foreign currency out of the
country per year for personal use.
This capital flight brought pressure on the value of the dinar.
The dinar, pegged to the special drawing right
had long been one of the most stable and realistically valued
currencies in the Middle East. From 1982 to 1987, the dinar varied
only slightly in value, from about US$2.55 to US$3.04, reflecting
fluctuations in the value of both the dollar and the dinar. During
this period, no significant black market for dollars existed. But
in a one-year period ending in January 1989, the dinar depreciated
by more than 30 percent, from an official exchange rate of US$2.90
per dinar to US$1.96. The Central Bank attempted to freeze the
exchange rate at the latter level, but money changers ignored the
official rate and opened a black market for United States dollars
and other foreign currencies. Although the Central Bank eased
restrictions on the amount of foreign currency Jordanians could
keep or bring into the country, it nevertheless was forced to cut
the official rate repeatedly, chasing down the value of the dinar.
By February 1989, the official rate had been cut another 10 percent
to US$1.76, at which point it appeared to stabilize.
Data as of December 1989