Through Decentralisation to Independence

By Jumana Ghunaimat

تم نشره في Wed 10 August / Aug 2016. 09:38 PM
  • Jumana Ghunaimat

There are new Articles and terms in the amended Central Bank regulations for 2016 that reinforce the Central Bank of Jordan (CBJ)’s independence and enhances its performance. Chief among these terms is the particular one that has to do with the exchange price policy, now allocated to the discretion of the Central Bank’s management instead of Cabinet, which has been expanded to include 6 directors.

The primary benefit of this reallocation, of exchange prices, to the Central Bank, is that the inclinations and influence of non-specialists are minimised; those inconsiderate of the sensitivity of exchange price policies, who approach it as an easy way out of the general public financial predicament, fully —perhaps— unaware of the devastating effects of unwise decisions when it comes to fiscal and monetary policy. This only means that the fate of Jordan’s national currency is in safer hands, now that such a sensitive sphere of the economy has been safeguarded from inexpert interference.

On the broader scope, the most recent Amendments bring the CBJ operation closer to global standards on Central Bank benchmarks, which is good. In addition to reinforcing the independence of CBJ’s decisions, which is reflective on general fiscal stability, this also strengthens monetary stability in bodies under the Central Bank’s operational umbrella.

For example, the new regulation outlines authorities on another issue that has long been a headache to monetary and fiscal authorities in Jordan; “Overdrafting”. This whole issue has been regulated to the sole discretion of the CBJ, which is crucial to constrain government overdrafts as well as to the sustenance of fiscal stability, again.

Moreover, there is yet another issue; addressed by the amendments, that comprised quite a debate between banks, experts, and CBJ; removing the Required Reserve Article in the 2016 bundle of amendments, which is basically the obligatory rate off deposits in banks required to be reserved at the Central Bank for stability and reassurance purposes. Many voiced to remove the whole term and liberate capital for investment; which is way too lenient.

In this regard, the older term, which is obligatory of a 5 to 35 per cent range off deposits in banks to be reserved at the Central Bank, was substituted by another Article that also reallocates the percentage rate for Required Reserves to the sole discretions of the Central Banks, which preserves the interests of banks themselves, and protects their operations from their own mistakes, to reinsure that the banks crises do not reoccur. Which is the range was floated for the CBJ to assign a rate for banks to abide by in accordance to their own flaws and imbalances; allowing for banks doing well off to invest their reserves, perhaps, while prohibiting other banks, not doing so well, from discarding their reserves.

Now, these reforms and positive developments in the regulation were crucial vital. More so was the need to revaluate authorities and procedures in the assignment and resignations of CBJ Mayors and board. Indeed, the new regulation has now, while retaining the Cabinet’s authority on the matter, also coupled it by law with the issuance of a Royal Decree.

Perhaps in the future, we require further fortification, so that the assignment and removal of the Central Bank Mayor, by allocating this authority to the sole discretion of the King, no one else involved!

Typically, many banks may not be fond of the new CBJ Regulation, as these amendments tighten monitory strains and supervision. But this no more than the Central Bank’s natural role as a regulator for the banking industry. Additionally, this does not annul the achievements of the Central Bank over the years, despite the difficulty and gravity of the recent crisis, in encouraging cross-sector investments in renewable energy, tourism, and funding SMEs through various financial windows; all part of CBJ’s primary role in contributing to development and growth in Jordan.