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05 February 2025

Currency basket helped curb inflation: Kuwait

Kuwait's M1 money supply growth up 13.6%. (SUPPLIED)

Published
By Nadim Kawach

Kuwait's decision three years ago to unpeg its currency, the dinar, from the US dollar and revert to a basket of currencies has benefited its economy and curbed spiralling inflation, the emirate's financial leaders have said.

Although its partners in the six-nation Gulf Cooperation Council (GCC) are still pegging their currencies to the dollar, Kuwait's currency basket will not affect plans to launch a single GCC currency, they said.

"Pegging the dinar to a basket of currencies of the countries with which we have strong trading and financial relations has contributed to achieving relative stability in the dinar's purchasing power against those currencies," Kuwait Finance Minister Mostafa Al Shamaly told the monthly magazine of the Beirut-based Union of Arab Banks (UAB).

"I can say that the new system which was introduced in May 2008 has boosted Kuwait's ability to contain inflationary pressures and the repercussions of sharp fluctuations in global currencies… It has also given us more room and flexibility in mapping out the domestic monetary policy."

Shamaly was asked whether the basket would affect plans to issue a single currency as part of the GCC monetary union which was launched at the beginning of 2010 by Saudi Arabia, Kuwait, Qatar and Bahrain.

He said: "I would like to affirm that there is no contradiction at this stage between our exchange rate system and the monetary union's requirements."

Kuwait had long adopted a basket for its currency before it decided to join other GCC members in pegging the dinar to the US dollar in 2003.

"The change in our exchange rate system in 2007 has supported our monetary policy and achieved a sort of stability in our currency… Ever since, the dinar has moved up and down in line with the movement of those currencies and their relative weights in the basket," Kuwait's Central Bank Governor, Sheikh Salim Al Sabah, told the UAB magazine.

"Despite this movement, the new system has enabled us to maintain relative stability in our currency and in its purchasing power against those currencies… This in turn has helped to curb part of the imported inflation pressures which are linked to fluctuations in major currencies. It can be said that this system has allowed us to better chalk out our monetary policy and this, in turn, has contributed to arresting sharp movements in key currencies."