Memorandum Regarding a Group of Measures to Develop the Effectiveness and Efficiency of the Capital Market No. 304-96 dated 29-10-1996

Form (1/7/07/1)
In the Name of Allah, the Most Gracious, the Most Merciful

Central Bank of Jordan
CENTRAL BANK OF JORDAN

Number: 20584/11/5/1
Date: 13 Jumada al-Thani 1417 AH
Corresponding to: 29 October 1996 AD

Memorandum to Licensed Banks
No. (96/30)

In the context of the financial and monetary liberalization policy pursued by the Central Bank of Jordan, and given the importance of developing the money market to enhance economic activity, the Central Bank announces a set of measures aimed at developing the effectiveness and efficiency of the capital market and enhancing banks' ability to manage their local liquidity, foreign currency liabilities, and foreign currency assets. This contributes to encouraging local and foreign investment within a climate of freedom and openness:

First: For the purpose of activating the interbank money lending market, the method of meeting the mandatory reserve requirements on Jordanian dinar deposits at banks is modified as follows:

1. The bank must hold daily at the Central Bank an amount equal to 80% of the mandatory reserve requirement imposed on it during the "maintenance period," which lasts for one month. Under no circumstances may the amount held daily fall below this percentage.

2. The bank is permitted to meet the remaining 20% of the mandatory reserve requirement by calculating the daily average of balances covering this percentage during the aforementioned "maintenance period."

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CENTRAL BANK OF JORDAN
البنك المركزي الأردني

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3. This new method of meeting reserves applies from the beginning of the regular maintenance period for November 1996.

4. The mandatory reserve ratio and its calculation method remain as they are.

Second: In light of permitting banks to lend in foreign currencies, the following has been decided:

1. The current mandatory reserve ratio imposed on foreign currency deposits held at banks is reduced from 35% (thirty-five percent) to 14% (fourteen percent).

2. The new mandatory reserve ratio on foreign currency deposits, amounting to 14%, is treated in the same manner as the mandatory reserve in Jordanian dinars, such that this reserve does not incur any interest.

3. An amount equivalent to this ratio must be held at the Central Bank of Jordan as a daily balance during the "maintenance period."

4. This reduction in the mandatory reserve ratio on foreign currency deposits applies from the regular maintenance period for November 1996, with the reduction implemented over three months.

B. Amounts held at the Central Bank exceeding the 14% mandatory reserve ratio are treated as they are regarding the receipt of agreed-upon interest rates.

Form 1/07/09/0
P.O. Box 37 • Amman 11118 – Jordan • Phone 63.2.1 • Telex Bankri/Amman • Fax 21250, 21476, 21766 • Fax 638889, 63973, 6132.8

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Third: For the purpose of removing gaps and obstacles to foreign currency movements and achieving further liberalization of the money market, and within the Central Bank's trend toward liberalizing these gaps, the following has been decided:

1. The account of a Jordanian resident in foreign currency is treated like that of a non-resident regarding current payments.

2. A Jordanian resident individual is permitted to hold foreign currencies at Jordanian banks within the Kingdom in any amounts they wish and without any ceilings.

3. Banks are permitted to manage investment portfolios in foreign currencies for residents' accounts, as is the case in managing these portfolios for non-residents' accounts.

4. The rules for dealing in foreign currencies based on the margin for non-residents apply to residents.

Fourth: To enhance the investment opportunities available in the Kingdom and to open the field for those holding foreign currency to benefit from these opportunities, it is permitted, effective from its date, to swap assets (Asset Swap). This allows a bank client to sell foreign currency to the bank immediately in exchange for dinars, and simultaneously allows the client to repurchase the foreign currency that was in their possession via a forward purchase (Forward) for the duration (number) they desire, with the possibility of rolling over (Rollover) the repurchase of foreign currency for any duration they wish. The client and the bank agree on this without requiring approval from the Central Bank.

The Governor
Dr. Ziad Fahim

Form 1/1/9.

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