Kuwait abandons US dollar currency peg

[Kat Kanning]

Iraq got bombed for doing this.


Kuwait abandons US dollar currency peg

By Simeon Kerr in Dubai Sun May 20, 1:45 PM ET

Kuwait on Sunday removed its currency peg to the US dollar, throwing plans for a Gulf currency union by 2010 into doubt and raising the prospect that other oil-producing states might abandon long-held dollar pegs.

Sheikh Salem Abdelaziz Al Sabah, governor of the Central Bank of Kuwait, told the official Kuwait news agency that the decision had been made owing to the "detrimental effects of the pegging system to the national economy".

Since late last year, Kuwaiti officials have hinted that the country would revert to a basket of currencies to prevent the sliding dollar increasing the cost of imports, which has stoked inflation to more than 4 per cent, double the historic average. This has encouraged speculators to plough billions of dollars into the dinar over the past few months, betting that the central bank would allow the dinar to appreciate.

On Sunday, the dinar traded up 0.4 per cent as the central bank replaced the peg with a basket of undisclosed currencies. The central bank had allowed the currency to vary up to 3.5 per cent from the peg, but the dinar had been at the top end of the approved trading band for a year owing to the continuing weakness of the dollar and the strength of Kuwait's oil-driven economy.

The dollar is expected to make up about 75-80 per cent of the new basket, reducing the third largest Arab oil exporter's exposure to the weakening dollar.

Kuwait dropped its currency basket in 2003, adopting a dollar peg as part of the Gulf Co-operation Council countries' drive to create a unified economic block with a single currency by 2010. But doubts over the ability of the GCC economies to harmonise have arisen, with one member of the six-nation council, Oman, saying it would not meet the convergence criteria.

"There have already been a lot of question marks over currency union taking place; this raises an additional one," said Simon Williams, an economist with HSBC in Dubai.

Kuwait's move may come as a surprise to other GCC states, such as Saudi Arabia and Bahrain, which have been repeating their commitment to the peg in recent weeks, saying that any revaluation should be agreed collectively by the GCC.

Mr Williams did not believe other GCC states would follow suit on revaluation quickly, as these countries have clung to dollar pegs since the early 1980s.



But other GCC states - Saudi Arabia, the United Arab Emirates, Bahrain, Qatar and Oman - are studying the move as an option to mitigate dollar weakness.

[powerchuter]

Iraq got bombed for doing this.

yes they did...
and men, women, and children died...

[Lloyd Danforth]

Except for the problem that they don't play well together, I can't figure out why OPEC doesn't create their own Fiat currency like the EU.

[Raineyrocks]

Except for the problem that they don't play well together, I can't figure out why OPEC doesn't create their own Fiat currency like the EU.

http://en.wikipedia.org/wiki/Islamic_gold_dinar

And its not even fiat!

I'm sorry, wikipedia confuses me so I'm just going to ask.  Do you think this dinar is a good investment?  Where would I trade it in if it's value started falling?  I looked at the website for buying dinar and you can get like a million dollars of dinar for under $1000 US currency.

[Raineyrocks]

Do you think this dinar is a good investment?

If you can find some in the form of gold coins at a reasonable price, they are fine. But American Eagles, Canadian Maple Leafs, Krugerrands, etc. are all just as good. Gold is gold.

Thanks!  I thought the dinar was paper money?  Isn't the dinar cheaper than American Eagles and other gold coins?

[error]

Of course. But it's also got much less gold in it.

[Raineyrocks]

Of course. But it's also got much less gold in it.

Thanks!

Here is a pretty good link too.

http://www.iraqidinar.org/

[error]

That has nothing to do with the Islamic gold dinar coins.

[error]

Oh, I'm reasonably sure that at least some of those sites will actually send you real Iraqi dinar notes, in good condition, issued by the new central bank in Iraq. But, again, that has absolutely nothing to do with gold coins, and as far as I know, the Iraqi "dinar" notes aren't backed by anything.

[error]

Don't think "dinar", or for that matter, "dollar", "peso", etc. etc. etc. Think "gold" and "ounces", "grams", etc. You'll be much better off!

And purity.

[Raineyrocks]

That has nothing to do with the Islamic gold dinar coins.

Of course. But it's also got much less gold in it.

Thanks!

Here is a pretty good link too.

http://www.iraqidinar.org/

That does look like a scam.

I'm just going to stick to buying lottery tickets.  Thanks guys this is just too confusing to me! 

[error]

Rainey, one's gold coins, and the other is pretty colored pieces of paper.

[Raineyrocks]

I'm just going to stick to buying lottery tickets.

Not only does the lottery support the government, but it is also a waste of money. Shame on you.

Thanks guys this is just too confusing to me! 

I think you're a lot smarter than you let on around here. 

Oh shoot, that's right about the lottery!  I think I'm smart but when it comes to certain things my brain just keeps hitting a brick wall and I don't understand the information yet I understand other things such as quantum physics. Thank you for saying that!

[error]

Money 101:

You have a turkey in your backyard that you don't want. But you really feel like having a chicken. But the guy who has a chicken for sale doesn't want a turkey. So you go find somebody who does want a turkey, and in exchange he gives you some shiny bits of rare valuable metal. These bits of rare valuable metal are called money. Money solves the barter problem of being unable to trade because you can't agree with another party on what to trade with. And money doesn't have to be metal. It can be anything rare and valuable that has its own intrinsic value, aside from being a medium of exchange. In the Roman empire, salt was frequently used as money. This is where the phrase "worth his salt" came from.

Money 102:

All those bits of metal and bags of salt are kind of hard to carry around with you, and they can be inconvenient to store up. Enter the bank. The bank stores money for you and gives you a receipt saying you deposited some stuff with them and to present the receipt whenever you want to get it back. Now you don't have to haul around a bunch of gold in order to make that business deal. You can just give the receipt to the person you're doing business with, and they can use it go get the gold out of the bank themselves.

The paper receipts represented the money, which was stored elsewhere. Money in the U.S. operated this way, for the most part, until a few decades ago. This is called value-backed currency.

Money 201:

Pretty early on, bank owners figured out that they could issue these receipts without actually having the specified rare and valuable bits of metal in their warehouse. And unless everyone decided to get their stuff out of the bank all at once, nobody would be the wiser. Or so they thought. The Federal Reserve started doing this from the very moment it opened its doors in 1913. By the time of the crash in 1929, it had something like twice as many receipts out circulating as it had actual rare and valuable bits of metal. It started quietly taking in some of these excess receipts, thus contributing in large part to the crash and ensuing depression. Nobody then knew quite what was happening, nor why things cost $2 which cost $1 twenty years prior, and for hundreds of years before that. (Such things now cost over $25.) This is called inflation, followed by deflation. A statesman once warned about it, but the warning is largely forgotten, even today.

Money 202:

Over time, the U.S. started decoupling its paper receipts from the rare and valuable bits of metal, so that if you happened to have a receipt, you could no longer go and get the rare and valuable bits of metal. By the 1970's this process was complete, and all that was left were the paper receipts, for which you could no longer make any claim to rare and valuable bits of metal stored in any bank anywhere. This is called fiat currency. Or, pretty little bits of colored paper. They have no intrinsic value, and they don't even work very well as toilet paper. They are a claim on nothing. And the only reason that people use them is because they're required by government force to accept them if they're offered in payment.

[Dreepa]

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