Peg to currency basket shields economy, says Kuwait bank chief

Peg to currency basket shields economy, says Kuwait bank chief

Kuwait's top banker said he remained content with the peg of the dinar to a basket of currencies as it has helped shield the local economy from US dollar fluctuations and increase stability, at a time of volatility in global currency markets. Kuwait Central Bank governor Sheikh Salem Abdulaziz al-Sabah told Zawya Dow Jones in an emailed response to questions that the dinar’s peg to a currency basket “is assessed as having assisted in shielding Kuwait from the often volatile fluctuations in the values of other currencies, and in turn inducing a measure of stability to the local economy.”

Since 2007, Kuwait has pegged its dinar exchange rate to an undisclosed basket of currencies from countries with which it shares financial and trade ties, but the dollar is believed to still hold significant weight in the basket. Before that, the oil-rich state pegged its currency to the dollar, a policy still followed by Kuwait’s fellow members of the Gulf Cooperation Council (GCC). The other five GCC states-Saudi Arabia, the UAE, Qatar, Bahrain and Oman-all have maintained their currency pegs to the greenback.

Together, the six GCC countries meet nearly a fifth of the world’s daily crude oil needs. Recent dollar weakness, following the downgrade of the US’s credit rating by Standard and Poor’s earlier this month and mounting uncertainty over the economic outlook of the world’s biggest economy, has renewed speculation that GCC states might review their currency pegs as inflationary pressures are increasing and income from dollar-denominated oil exports is being eroded.

The central bank governors of Bahrain and the UAE earlier this month reiterated that they had no intention of steering away from the dollar link.

Sheikh Salem said Kuwait’s policy to peg the dinar to a currency basket has also helped avoid speculation in its currency.

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