Kuwait cuts loose from sinking dollar

KUWAIT CITY, May 20, 2007 (AFP) – Kuwait on Sunday pegged its dinar to a basket of international currencies after more than four years of linking the local currency to the dollar, in a bid to reduce inflationary pressures. The oil-rich emirate had historically pegged the dinar to a basket of currencies before pegging it to the dollar on January 5, 2003 in preparation for single currency in Gulf Cooperation Council states planned for 2010.

The value of the dinar immediately jumped from 289.14 fils to the dollar to 288.01 fils on the news. There are 1,000 fils in one Kuwaiti dinar.

Central Bank governor Sheikh Salem Abdul Aziz al-Sabah said in a statement quoted by the state-run KUNA news agency that a sharp decline in the dollar’s value had a negative impact on the Kuwaiti economy in the past two years.

“In spite of efforts taken by the central bank to reduce the impact of the dollar’s decline against other currencies… it resulted in a drop in the dinar’s purchasing power against other international currencies,” he said.

“That contributed to a rise in the domestic inflation rate and accordingly this step comes as part of efforts to reduce inflationary pressures on the local economy.”
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