By Majd Othman
KUWAIT: Despite global economic crises, the Kuwaiti dinar continues to stand as one of the most stable currencies worldwide. This stability acts as a shield, protecting the country from the adverse effects of currency devaluation that many other nations face during such challenging times. According to the Central Bank of Kuwait, a key factor contributing to this stability is the country’s policy of pegging the Kuwaiti dinar to a weighted basket of international currencies. This basket comprises currencies from nations with significant commercial and financial ties to Kuwait.
This policy has proven highly effective in maintaining a robust exchange rate for the Kuwaiti dinar against major international currencies. Moreover, it plays a vital role in shielding the local economy from the repercussions of imported inflation, underscoring the currency’s importance to Kuwait’s economy. Remarkably, Kuwait does not impose any restrictions on capital movement, further enhancing its currency’s stability.
Intriguingly, the Kuwaiti dinar is among the most valuable currencies globally, despite the country not having the largest economy or the fastest-growing one. The Central Bank of Kuwait adopts a fixed exchange rate system for the dinar (at around $3.32), meaning it remains unaffected by supply and demand forces. This approach is aimed at maximizing profits from oil, which accounts for approximately 90 percent of Kuwait’s export revenues and national income.
Additionally, Kuwait boasts one of the world’s largest sovereign wealth funds, ranking second among Arab sovereign funds and holding a prominent position globally. The Abu Dhabi Investment Authority leads Arab sovereign funds, followed by the Kuwait Investment Authority. Meanwhile, the Saudi Public Investment Fund stands third in the Arab world. Reports also indicate that Kuwait maintains substantial financial reserves, with its international reserves surpassing $500 billion in 2016.
This financial cushion means that Kuwait does not need to devalue its currency to support non-oil exports, which constitute a mere 5-10 percent of total exports, amounting to approximately $440 million, while oil remains the dominant contributor at 90 percent. Kuwait’s prudent financial policies, including its pegging strategy and robust sovereign wealth fund, have played a crucial role in maintaining the stability of the Kuwaiti dinar, safeguarding the nation’s economy from external shocks and ensuring its currency remains among the most valuable in the world.