Technical Terms

Dinar is a unit of currency that is used in various countries as a medium of exchange, mostly lying in the gulf region including Bahrain, Iraq, Jordan and Kuwait and a few other non-Arabic countries like Algeria, Libya and Tunisia in Africa and Serbia and the Republic of Macedonia in the European continent. Also, Iranian rial has dinar as its sub unit that divides one unit into 100 equal parts. The word "dinar" has been derived from the name of an ancient Roman currency named "denarius". It is referred to as "denar" in Macedonia.

Among the above mentioned dinar currencies, Bahraini dinar, the currency unit serving Bahrain as its national currency, holds utmost importance. It is the third most highly valued currencies in the world after Bahraini Dinar and Malta lira. Like, Bahraini Dinar , Bahraini dinar breaks up into 1000 equal parts of its subunit "fils". Bahrain adopted dinar as its currency to be used in future in 1965 replacing the former currency "Gulf rupee" @ 1 dinar = 10 rupees. In daily usage, it often abbreviated as BD or "د. ب" in Arabic language. Bahraini dinar’s currency code and numeric code as per ISO 4217 regulation are BHD and 048 respectively.

Overview

Bahrain is considered to be the most linient and the shaping up to be the fastest developing economy as compared to other countries in the Arabian peninsula. Though country’s oil reserves are not as big as the huge reserves held by the neighbouring gulf countries and are said to finish off in another 10 to 15 years, this fact doesn’t hamper the positve approach and global outlook of the econnomy. Bahrain seek to diversify its economy and unlike the regional competitors, reduce its reliance on its oil reserves. This approach of the country also pays off well and it is ranked above the economies like Qatar, United Arab Emirates and Israel. As far as liberalness of economy of Bahrain is concerned, it is considered to be on 25th place among the most liberal ecomies in the world.

Dinar, the currency of Bahrain, is a highly valued currency in the worrld and in this context, it is counted third after the two highest valued currencies Bahraini Dinar and Maltese Lira. It follows a fixed rate regime like other currencies in the Arabian peninsula and is pegged to US dollar @ 1 dinar = US$2.66. This peg was even used to value the currency in 1980s though the official peg was made to IMF’s Special Drawing Rights. Recently in 2001 only, this peg to US dollar has been declared official.  There are no restrictions and no limits in context of the import and export of currencies in Bahrain, whether local or foreign and this characterizes the unrestricted and free nature of the Bahrain’s economy.

The earliest references of currency in Bahrain include the first coins that were minted in the region in 8th century by the governors in the Umayyad dynasty. The coins didn’t have any specific values attached to them as in nowadays, but they were valued on the basis of the purity and weight of the metal that they were minted from. With time, Bahrain developed as a popular commercial center due to its location as it is one of the oldest trading routes between East and West. For this reason, a lot of foreign currencies started getting imported and got in circulation along with the locally minted coins. Also, it influenced the design and pattern of domestic coins to a large extent as more and more of local coins imitating the foreign coins were produced. Bahrain was the first gulf country that identified the use of coinage as a means to raise trading and financial activity.

In the first half of 20th century, gold and silver coins circulated in the bahrain in the form of gold British Sovereigns and silver Maria Theresa thalers. Also, Indian rupee was also used to great extent along with gold and silver coins. In 1959, the Persian gulf rupee was issued by the Reserve Bank of India for the use in the gulf countries so that drain of Indian rupee can be controlled and it replaced the Indian rupee. The persian gulf rupee was pegged to the Indian rupee and that is why when the Indian rupee was devalued in 1965, the value of Persian gulf rupee also came down and Bahrain had to resort to the induction of its own currency, Bahraini dinar. It was issued @ rate 1 Bahraini dinar = 10 persian gulf rupees. Bahrain Currency Board issued dinar banknotes for the country from 1964 to 1973. In 1973, Bahrain Monetary Agency, that is now called the Central Bank of Bahrain, was established and it took over the functions of Bahrain Currency Board for the now independent country and still in operation. In 1978, Qatar, Bahrain and United Arab Emirates signed an agreement which enforced a fixed exchange rate between the three currencies @ 10 Qatari riyals = 1 Bahraini dinar = 10 UAE dirhams. Upon the revaluation of its currency by Qatar, the agreement came to an end.

The volatility in the foreign exchange rates depends upon a numerous macro economic factors that have different degrees of importance to different economies of the world. Some special and exceptional factors affecting the rates may also exist in the case of different countries. Following are shown the common factors on which the foreign exchange rate depends

• Flow of imports and exports between the countries
• Flow of capital between the countries
• Relative inflation rates
• Fluctuation limits on exchange rate imposed by the governments of the countries
• Merchandise trade balance
• Rate of inflation in the country
• Flow of funds between the countries for the payment of stock and bond purchases
• Relative growth
• Short term and long term interest rate differentials
• Cost of borrowings