The US Dollar is the primary currency used for international transactions and is widely accepted as a reserve currency. This means that many countries, including Jordan, use the US Dollar as a benchmark for their own currencies.
If the US dollar were to lose its status as the world’s dominant currency, it could potentially have a significant impact on the economy of Jordan, which is heavily reliant on trade and investment from other countries. A weaker dollar will 1) make Jordanian exports more expensive, 2) lead to a decrease in foreign investment, 3) negatively affect tourism, and 4) create a negative impact on the country’s GDP that leads to higher unemployment. Moreover, Jordan imports of goods and services will become more expensive, thus leading to higher inflation. Clearly, the scenario is complex and other factors like Jordan’s economic and political situation, trade partners, the alternatives to the US dollar, etc. would play a role in determining the effect of such impact.
An immediate effect of a decline in the US Dollar’s status would be a depreciation of the Jordanian Dinar. The Dinar is pegged to the US Dollar, and a decline in the value of the Dollar would lead to a decline in the value of the Dinar as well and makes exports from Jordan more expensive and less competitive in the global market, thus decreasing the balance of foreign currencies generated through export activities. The Jordan government and central bank will have to take steps to mitigate the effects of such decline, some of which may not be favorable to the Jordanian business and population.
Jordan relies heavily on foreign investments and loans to finance its budget deficit and infrastructure projects.
Sharhabeel Mansour, Partner in Baker Tilly in Jordan says:
“A decline in the US Dollar’s status would make it more difficult for Jordan to borrow money from international lenders, and the cost of borrowing would likely increase. This is because many international lenders and investors use the US dollar as a benchmark currency for lending and investing”.
If the US dollar loses its status, it could create uncertainty and volatility in the global financial markets, making it more difficult for Jordan to access capital. Additionally, it could lead to a decrease in the value of the US dollar, which could make borrowing in US dollars more expensive for Jordan and makes it more difficult for Jordan to repay its debt, as the value of the US dollar would be worth less in comparison to other currencies.
A decline in the US Dollar’s status would affect Jordan’s tourism industry. The US Dollar is the most accepted international currency in Jordan, and a decline in its value would make it more expensive for tourists to visit the country and purchase goods and services as majority of the tourists visiting Jordan use the US dollar as the primary currency for transactions. This can lead to a decrease in the number of tourists visiting Jordan and a decrease in revenue for the tourism industry, which may force businesses in the tourism industry, such as hotels and tour companies, to raise prices to compensate for the negative effect and the decrease in the number of tourists to further discouraging tourists from visiting Jordan.
The combined effects of the above will cause local businesses to mitigate the economic downturn and negativity through terminating their employees, thus increase the rate of unemployment in Jordan, which will further have a negative effect of the local economy.
If the US dollar loses its status, it could create uncertainty and volatility in the global financial markets, making it more difficult for Jordan to access capital. Additionally, it could lead to a decrease in the value of the US dollar, which could make borrowing in US dollars more expensive for Jordan and makes it more difficult for Jordan to repay its debt, as the value of the US dollar would be worth less in comparison to other currencies.
What can Jordan do to mitigate the potential negative effect of the US Dollar losing its prominent status on the global stage:
- Focus on developing several sectors of the economy, such as tourism, manufacturing, and technology, to reduce its dependence on exports and foreign aid.
- Seek to establish and promote trade agreements and partnerships with countries outside the US and the eurozone to reduce its dependence on the US dollar.
- Strengthen a robust financial system, including its banks and capital markets, to make them more resilient to currency fluctuations.
- Increase its foreign currency reserves, to provide a buffer against currency fluctuations.
- Encourage and attract foreign investment to provide a source of capital and create jobs.
- Promote its’ tourism industry to attract more visitors and thus increase its income in different currencies.
- Strengthen its ties with other countries, particularly those in the Middle East, to increase its economic and political stability.
- Develop alternative payment systems, such as digital currencies and blockchain technology, to reduce its dependence on the US dollar.
- Invest and promote education and training programs to develop a more skilled workforce to be attractive to foreign investors.
- Create an environment that is conducive to entrepreneurship and to encourage the development of new businesses and industries.
Baker Tilly in Jordan sees that the current global events may prove to be a positive in disguise in forcing the Jordanian government to fully review the status of the local economy and investigate the current challenges and risks before time elapses and harder decisions will no longer be an option but a reality.
