Why is Kuwait Dinar So Strong?

The skylines, creative architecture, and a vibe of regal and royalty, this is Kuwait, for you. Apart from its natural placement, the land of Kuwait has recently been a talk of the town, the reason being its currency and its high value. So let’s lift the curtains from the ongoing gossip.

How did it come into existence? 

To understand why Kuwaiti Dinar is among the highest currencies across the globe, let’s trace back its roots. The lines of history connect us to the Roman currency – Roman Denarius, which was used in 211 BC. Although Denarius was not the first coin used, it was one of the most successful currencies found in the Italian Peninsula. The currency did lapse with the time but left a print in the book of the currency system. One example that can be witnessed is the use of similar words such as Denaro, Dinero, and Dinheiro.

Moving further, the Roman Empire got divided into two parts – The Western and Eastern Roman empire. The western went on to become the province of Italy while the eastern side went on to conquer Constantinople. Because of the expansion, the Islamic cultures were influenced by the Romans, and then the subsequent dynasties introduced a currency named – Dinar.

Due to the extensive influence in the Islamic world, Dinar was popularised. When Kuwait was separated from the UK, the administration of Kuwait introduced Kuwaiti Dinar as an official currency to replace the Gulf Rupee.

Since the first round of circulation, there have been six official issues from 1961. The series of currency released in 1980 went on to becoming obsolete when Iraq invaded Kuwait. Post invasion Iraqi Dinar went on to become the official currency of the area. When the hostile situation was lifted, then the fourth series of currency was issued in 1991. The year 1994 saw some security up-gradation, and the final series (current) was released with an engraved impression so that the vision-impaired could also feel them by touch. 

Why is it Expensive?

To understand why Kuwaiti Dinar is among the highest currencies worldwide, it is important to understand the phenomenon of exchange rates. The nature of this can be divided into three ways:

1. Floating

2. Fixed

3. Hybrid

The floating rate is variable and is directed by the market force and performances, whereas the fixed rate is nothing but the idea of pegging the value to other currencies. One other aspect which is considered apart from the two is the hybrid system, which encompasses the characteristic traits of both options.

In the case of the Kuwaiti Dinar, it follows the second regime, which is pegging the country’s currency to other currencies. To start with, it pegged the value of Dinar to Pound Sterling, the national currency of the UK and other British territories. However, with the change in tides, the Dinar was pegged to a basket of currencies chosen by the Kuwaiti Currency Board from 1975 to 2003. Post some turbulence, the decision was changed, and then Kuwaiti Dinar was pegged to US dollar at the rate of 0.29963 Dinars to 1 US dollar back in the year 2003. This arrangement continued till 2007, and then the Kuwaiti Currency board decides to switch to an assorted basket of currencies. So is it all really this easy to peg one’s currency to that of the other nation? The answer is no. So, how Kuwait is doing all of this? The answer lies in the abundant resource it has. Pegging is only possible when you have abundant resources to back your claims. There are various ways and tools; the tool used by Kuwait is superfluous economic power. As it is well known, a large chunk of the economy is driven by petroleum products, which will always be an important avenue for the world. However, despite the credible resource, the Kuwaiti government has continuously been adding a lot of monetary resources into the capital funds established by the Kuwait Investment Authority. This move will secure the future of the nation as a whole and help Kuwait become a credible market source soon.

 How does it all function?

The modus operandi is quite simple; in the stint of 3 years (between 2016 to 2019), the currency of Kuwait fluctuated between $3.27 and $3.36. The information meant that to buy one Kuwaiti Dinar; one might have to spend as low as $3.27 to as high as $3.36. Simplifying it down, a charge of 3.36 USD for 1 Kuwaiti Dinar would mean that the value of US Dollar is depreciating against the value of Dinar. Similarly, if 1 Dinar is bought for $3.27, then the value of USD appreciates against it.

As witnessed, the value of the Kuwaiti Dinar is quite volatile in the market and has limited trading opportunities; due to this, it is not a lucrative option for the investment perspective. Even considering the variable range i.e., buying it at the lowest and then selling it at the highest will yield only 2.75% of the profit. Unless, until there’s a significant pragmatic shift that is going to uplift the value of Dinar, it’s not wise to invest both- efforts and capital in the investment 

Is it important to the global economy?

Honestly, the dangling value, however, high it may hold little importance in the context of world trade. As the place is small and the population makes quite a small percentage of the holistic world population scenario, the high value is pretty much meaningless. It means that people outside Kuwait have very little to do with Kuwaiti Dinar and are unaffected by the rise or decline in the value of the same. Until and unless a country transforms into a superpower and starts controlling the major industrial trade, its value of internal resource holds less importance, as here in Kuwait.

So that’s it. The mystery behind the famous speculation is nothing but a couple of smart moves by the government. In the end, all this is nothing but a facade that holds no truth.