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 citizeÍÍÍÍns 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 (SDR--see Glossary), 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