The Central Bank of Jordan (CBJ) was established in 1964. Its main objectives are to maintain price stability, the convertibility of the Dinar and the sustained growth of the economy. Oxford Analytica, in its 2006 Report on Monetary Policy Transparency in Jordan, rates Jordan's compliance with the International Monetary Fund's (IMF) Monetary Policy Transparency standard as "Enacted" and asserts that Jordan continues to improve monetary policy transparency. These improvements include the availability and quality of information available, as well as communication with relevant stakeholders. Jordan is expected to subscribe to the IMF's Special Data Dissemination Standard (SDDS) by mid-2007. This commitment would ensure the quality of monetary statistics and should reduce the lag on monetary data from one month to two weeks.

General Overview

In assessing Jordan for its 2006 Monetary Policy Transparency Report, Oxford Analytica (OA) rated Jordan's overall compliance with monetary policy transparency standards as "enacted," and asserts that Jordan continues to improve monetary policy transparency. These improvements include the availability and quality of information available as well as the communication with relevant stakeholders. Jordan is expected to subscribe to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) by mid-2007. This commitment would ensure the quality of monetary statistics and should reduce the lag on monetary data. Currently Jordan produces and disseminates data and information in accordance with the IMF's General Data Dissemination System (IMF GDDS website).

Meanwhile, according to OA's 2006 report, the communication between the Central Bank of Jordan (CBJ) and stakeholder is already good. Nonetheless, "efforts to outline the direction of CBJ policy, as well as formalized requirements for public scrutiny of rationale, quantitative targets, instruments or underlying assumptions used for setting monetary policy objectives, remain absent" (p. 191). A previous issue of criticism was the lack of coordination and poor coordination between the CBJ, the Ministry of Finance (MoF) and the Department of Statistics. OA reports that this has since been addressed with the creation of an inter-agency committee which began to meet on twice a month in 2006. Consistency checks between government's statistics in different areas are, however, still not conducted.

According to the CBJ website, the central bank was established in 1964 as successor to the Jordan Currency Board (est. 1950). The CBJ is as an independent and autonomous corporate body, although its capital is owned entirely by the government. The law establishing the CBJ stipulates that the objectives of the Central Bank shall be to maintain monetary stability in the Kingdom, to ensure the convertibility of the Jordanian Dinar, and to promote the sustained growth of the Kingdom's economy in accordance with the general economic policy of the government.

The 2006 OA report notes that the CBJ continues to "consolidate its independence and reputation for effective monetary management in cooperation with the IMF and in line with King Abdullah's commitment to increase cabinet and civil service efficiency and to improve overall economic management in Jordan" (p. 192). The objectives of economic growth and price stability can of course be at odds at times, and the shared objective of economic growth carries the risk of government interference into the CBJ's affairs. The IMF in the 2006 Article IV consultations with the Jordanian authorities noted that the CBJ and the MoF will continue to coordinate closely. The government is considering options to retire gradually its debt to the CBJ (incurred in earlier years), including through the issuance of marketable interest-bearing securities. According to this report, "such an initiative will not only bolster the CBJ's profitability and its operational independence, but also help jumpstart the domestic bond market since 40 percent of government debt is held by the CBJ" (p. 14).

The exchange rate is pegged to the U.S. dollar, an arrangement that the IMF's 2006 Article IV consultation staff considers to be a stable nominal anchor. The existing interest rate spread was considered appropriate, as evidenced by the absence of foreign exchange market pressures.

The Principles

Clarity of roles, responsibilities and objectives of central banks.

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Oxford Analytica (OA), in its 2006 Report on Monetary Policy Transparency in Jordan, rates Jordan's compliance with this principle as "Enacted" (p. 192). According to the Central Bank of Jordan's (CBJ) website, the functions of the CBJ now include the following: (1) Issuing and regulating banknotes and coins in the Kingdom; (2) Maintaining and managing the Kingdom's official reserves of gold and foreign exchange; (3) Regulating the quantity, quality and cost of credit to meet the requirements of economic growth and monetary stability; (4) Taking appropriate measures to deal with local economic and financial problems; (5) Acting as a banker to the licensed banks and specialized credit institutions; (6) Supervising licensed banks to ensure the soundness of their financial position and protection of the rights of depositors and shareholders; (7) Acting as banker and fiscal agent to the government and public entities; (8) Advising the government on the formulation and implementation of financial and economic policy; and, (9) Carrying out any other functions or transactions normally performed by central banks, as well as any tasks charged to it under the Central Bank Law or any other law or international convention to which the government is a party.

Among these functions the central bank's core objectives is to preserve monetary stability. This entails a low inflation rate, a stable exchange rate, accommodating demands on reserves and an appropriate interest rate structure. The CBJ has continued to rely on open market operations to provide the market with the appropriate level of liquidity and the IMF has recommended that the CBJ should continue to remove excess liquidity through the issuances of Certificates of Deposits. The OA report notes that "all measures and policies of the CBJ are designed to be consistent with the ultimate objective of monetary policy, which is the fixed Jordanian dinar exchange rate" (p. 192).

The governor of the CBJ is appointed by the King. The monetary board of the CBJ is accountable for the CBJ's operations and for the conduct of monetary policy, as stipulated in the CBJ Law. Although no legalization exists specifying whether the government can overrule monetary decisions, in practice the MoF cannot do so. The OA report of 2006 notes that "in July 2001, in addition to the release of a new public debt law, a 'memorandum of understanding' was signed between the CBJ and the MoF to clarify the institutional relationship between monetary and fiscal operations. These measures effectively supersede the provision of the 1971 Central Bank Law, which allowed the CBJ to grant the government interest-free loans to cover temporary revenue shortfalls, provided that such loans did not exceed 20% of budgeted local revenues" (p. 193).

Open process for formulating and reporting monetary policy decisions.

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In its 2006 Report on Monetary Policy Transparency in Jordan, rates Jordan's compliance with this principle as "Enacted" (p. 194) OA further notes that the CBJ "does not declare a specific monetary policy framework or targets but has the ultimate objective of maintaining the fixed exchange rate regime" (p. 194). The CBJ remains conservative in its interest rate policy, setting interest rates in conjunction with U.S. Federal Reserve rates with a constant premium in order to maintain the exchange rate peg. The IMF deemed this policy appropriate in the 2006 Article IV consultations.

The Board of the CBJ is the central bank's monetary policy-making body, as well as the body responsible for managing the CBJ's general affairs. The governor is responsible for the implementation of the CBJ's policies and represents the CBJ in all its relations with other parties. According to OA (2006),. "the board's official responsibilities include: the determination of overall CBJ policies.... The board receives a monthly internal report on the CBJ's monetary position and operations. The composition of the board and the terms of appointment of its members are specified by law. It is made up of the governor, two deputy governors, and five additional members. The cabinet appoints the governor and deputy governors for a five-year term, which can be renewed by royal approval" (p. 194). The governor is legally responsible for communicating the CBJ's policies to the public, although no formal calendar is implemented for this task. Plans to start establishing an advance release calendar have been postponed to 2008.

Public availability of information on monetary policy.

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OA in its 2006 Report on Monetary Policy Transparency in Jordan, rates Jordan's compliance with this principle as "Enacted" (p. 197). Jordan is expected to subscribe to the IMF's Special Data Dissemination Standard (SDDS) by mid-2007. This commitment would ensure the quality of monetary statistics and should reduce the lag on monetary data. Currently Jordan produces and disseminates data and information in accordance with the IMF's General Data Dissemination System (IMF GDDS website).

The OA (2006) report notes that the quality of the CBJ's data and publications continued to improve during 2006 according to independent data users. Still, "while monetary and banking data in the CBJ's Monthly Statistics Bulletin are usually up to date, some areas such as price indices, the Bulletin shows only preliminary data for the eighteen months up to the Bulletin's reference date. The Monthly Statistics Bulletin is also sometimes delayed. The development of the Electronic Data Distribution (EDD) system should also facilitate better classification of the analytical accounts and strengthen the methodological soundness of monetary data" (OA 2006, p. 197).

In 2006, the CBJ continued to consolidate its services of publishing and disseminating its data, both through the National Information System and its website, which was re-launched in 2006. According to the 2006 OA report, this is part of a bigger communication strategy, including the creation of a "knowledge map,", meant to allow people both within and outside the CBJ to better understand where to find which expertise within the CBJ. The CBJ is also still planning to translate all its publications into English in the long-term, which currently have a two to three months lag.

Accountability and assurances of integrity by the central bank.

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In its 2006 Report on Monetary Policy Transparency in Jordan, OA rates Jordan's compliance with this principle as "Enacted" (p. 200). Under Article 61 of the Central Bank Law, the CBJ is required to deliver its Annual Report to the MoF within three months of the end of the financial year, which is the same as the calendar year. In addition to this, according to the OA report, "each year the CBJ prepares a document for parliament and the prime minister detailing its achievements. The governor is accountable to the prime minister and to parliament. The CBJ governor has a quarterly meeting with the parliamentary finance committee in which he explains policy measures taken by the CBJ. A parliamentary committee is assigned to oversee the CBJ's affairs and laws related to its operations" (p. 200).

A 2004 IMF update on the Report on the Observance of Standards and Codes: Data Module for Jordan noted that actions are being taken to improve the quality of the source data and the methodological soundness of the statistical output. Specifically, the CBJ is promoting the adoption of international accounting standards (IAS) by the commercial banks. Also, the Administrative and Financial and Banking Supervision Departments of the CBJ are in the process of adopting the IAS, in particular with respect to valuation procedures and the recording of financial derivatives within the balance sheet.