Money
Why is The Kuwaiti Dinar So Strong?
The Kuwaiti Dinar is the most expensive currency in the world exceeding of that the Pound Sterling which was considered quite high as well as the United States Dollar which is considered the standard currency used around the world.
As of writing the Kuwaiti Dinar is equivalent to $3.27 USD whereas if it was converted to Pound Sterling it will be £2.5. The difference is definitely there.
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The big question will be in what situation has caused this to happen? I mean the Japanese yen is not that expensive when compared to the Kuwaiti Dinar but Japan is one of the top countries in terms of GDP. Why is the Kuwaiti Dinar so strong and valuable among other currencies in the world?
History of Kuwaiti Dinar
When the British colonized the Arabian Peninsula, Britain introduced the use of the Gulf Rupee as the main currency that will be printed and produced by the Indian British.
Every 1 Gulf Rupee will be put at a value equivalent to one Indian Rupee. 1 Indian Rupee at the time was equal to 1 Pound Sterling.
When Kuwait managed to get its independence from the British, this allowed the Kuwaiti government to start planning on its very own currency replacing the Gulf Rupee which was shared among 4 countries like Bahrain, Qatar, Oman, and the UAE.
The currency of the Kuwaiti Dinar was first introduced in the year 1961, however, it took Kuwait roughly 5 years for it to abolish the old currency, Gulf Rupee that country was using. This has allowed the Kuwaiti Dinar to be one of the sole currencies used in that country.
The value of the Kuwaiti Dinar at first was equivalent to the value of the Pound Sterling at a ratio of 1:1 before Kuwait decided to put the value of the Kuwaiti Dinar with USD at a ratio of 1KWD: 2.8USD in which both started in the same year.
The government policy set by the current president of the United States at the time, Richard Nixon caused the value of the USD to depreciate and the KWD also took impact from it and ultimately decrease.
This situation led the Kuwaiti government to take safety measures by introducing a new system called the 'currency basket' in which the Kuwaiti Dinar will be based on the different types of currencies available to determine the KWD in the year 1975.
The system remains up until the year 2003 before the KWD was tethered back to the rate of 0.299 for every 1USD. until the Kuwaiti government goes back to using the old system of currency basket in 2007.
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But some of you might still be wondering why the value of KWD is so high. Well, it all has to do with oil and gas in which you can see that most Arab countries are rich.
Kuwait might be a small country compared to its neighbors but it is considered the 6th country with the biggest oil reserves in the world. More than 80% of the country's economy is reliant on its crude oil.
What made things more interesting is the demand for Kuwaiti oil is very high compared to its supply which has caused the power to bargain becomes very prominent in the country.
Supported by the world's demand, Kuwait has implemented a new rule in the export of its crude oil to other countries around the world in which all the sales need to be done using the Kuwaiti Dinar only.
It is very different from other countries that normally use the currency USD or EUR in order to make a deal. But if you want to purchase oil from Kuwait then you will need to use KWD instead.
And as you all know oil is considered very demanding and expensive, thus when countries are spending money on oils, billions of dollars are being spent which in turn raises the value of KWD itself directly.
This condition has benefited Kuwait in two ways. For one, the country's currency Kuwaiti Dinar which is being exchanged will have a stable demand and maintain its high value in the long term.
Secondly, Kuwait will also have a high influx of foreign currencies in their country which will be exchanged into the local currency, KWD.
Invasion of Iraq
Aside from the two reasons stated above, another factor contributing to the value of the Kuwaiti Dinar is due to the Kuwaiti government itself does not place KWD into the foreign currency exchange freely.
Up until now, the Kuwaiti government will only peg the value of the currency into either USD or basically stick with their currency basket system. This has allowed Kuwait to have full control of the value of its own currency so that it remains at its respective value.
Kuwait's economy is rather strong that it won't have to rely on high exports like the majority of countries to the extent that some countries will reduce the value of their own currency in order to compete with other countries around the world.
The stability of Kuwait's economy once crumbled due to the invasion of Kuwait by Iraq on August 2nd, 1990. There were disputes between the Iraqi government trying to maintain the price of their own oil in the most historic event of the Gulf War.
The Iraqi army decided to break into the central bank of Kuwait and stole $400 million worth of gold and roughly $1 billion of Kuwaiti dinars.
The aggression that lasted for more than 7 months has enabled the Iraqi government to introduce the use of the Iraq Dinar in Kuwait by declaring that the Kuwaiti Dinar is no longer a valid currency in the country.
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This situation has caused the rich in Kuwait to instantly become poor since their money was completely worthless.
The End of the Invasion Era
The war finally came to an end when the United States Army decided to intervene and assaulted the fortress built by Iraq. Finally, on 25 February 1991, Kuwait became independent and free from this invasion.
The Kuwaiti government quickly produced a new serial number on all their currencies making the currency stolen by Iraq worth nothing. This is done to protect their own currency after they came back in power.
However, things do not end there since the Kuwaiti government announced in August 2020 that the country might be running out of its own reserves and there could be no money left to be spent from November 2020 and onwards.
This is all due to the reduced demand for oil and ultimately the price itself as most people are not able to go out as the recent pandemic of Covid-19 has left many people to stay indoors.
The question will be whether Kuwait can stand back on its feet or fall to the ground similar to Venezuela due to becoming too reliant on oil alone.
Source: Iluminasi
Up until now, the Kuwaiti government will only peg the value of the currency into either USD or basically stick with their currency basket system. This has allowed Kuwait to have full control of the value of its own currency so that it remains at its respective value.
Kuwait's economy is rather strong that it won't have to rely on high exports like the majority of countries to the extent that some countries will reduce the value of their own currency in order to compete with other countries around the world.
The Iraqi army decided to break into the central bank of Kuwait and stole $400 million worth of gold and roughly $1 billion of Kuwaiti dinars.
The aggression that lasted for more than 7 months has enabled the Iraqi government to introduce the use of the Iraq Dinar in Kuwait by declaring that the Kuwaiti Dinar is no longer a valid currency in the country.
ADVERT
This situation has caused the rich in Kuwait to instantly become poor since their money was completely worthless.
The End of the Invasion Era
The war finally came to an end when the United States Army decided to intervene and assaulted the fortress built by Iraq. Finally, on 25 February 1991, Kuwait became independent and free from this invasion.
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