Technical Terms

Kuwaiti dinar, as the name suggests, is the official national currency of Kuwait. The country is listed among the richest countries of the world. The Kuwaiti dinar is relatively a new currency as it was established in 1960 and replaced the gulf rupee in 1961 when Kuwait gained its independence. The currency finds it place among the highest valued currency of the world leaving even the strongest of currencies like Great Britain Pound and United States dollar behind.

Kuwaiti dinar, unlike the other currencies, is divided into 1000 equal Kuwaiti fils. The ISO 4217 currency code for Kuwaiti dinar is KWD and the numeric code is 414. The English symbol with which the currency is known as is "KD" and the Arabic symbol is "د.ك". The monetary system in Kuwait is based on the floating rate regime, the value of the currency doesn’t fluctuate much though.

Overview

Dinar forms the official currency unit of most of the countries that constituted the ancient Ottoman Empire. The word "dinar" is taken from the word "denarius", which was the currency of  Rome in previous times. Kuwaiti dinar owes its importance to its high value. It maintains the reputation of the most expensive currency of the world as it keeps up a very high exchange rate as compared to the other major currencies of the world including Great British pound, Unites States dollar, Euro etc. Also, one of the highest per capita incomes sustains in Kuwait due to its highly valued currency.

  The economy of Kuwait is largely dependent upon the oil revenues that the country earns by exporting oil to other countries of the world. The country possesses 10% of the crude oil reserves of the world that help the country’s economy earn the 75% part of its income. But the dinar is not used to price the crude oil exported by the country and the oil is valued in terms of dollar. With the weather conditions not favoring agriculture, the country has to import its basic food necessities and even water. Keeping the currency exchange rate high helps the country to maintain a grand purchasing power so that it can make the required imports with less of currency to offer.

Kuwait didn’t have its own currency until it got independent from the reign of the British in 1961. Prior to the independence, the monetary system was dependent on the foreign currencies especially the Indian rupee that was vastly circulated in the country. Almost all the transactions in the economy were made in the rupee denominations from 1930s till 1960s. The Indian rupee was replaced by the Persian Gulf rupee at par in April 1959. The country got independent and issued its own currency for the first time – dinar at par with the British pound sterling. At that time, the authority of issuing the currency was given to Kuwait Currency Board but since the establishment of the Central bank of Kuwait in 1969, the currency issues are taken care of by the central bank only.

Till date, 5 series of dinar banknotes have been issued. The Kuwaiti Currency Board made the first issue of the currency banknotes on 1st April 1961 and that series was used till February 1982. The second issue of the currency was made by the Central Bank of Kuwait instead of the Kuwaiti Currency Board with new dinar notes of the denominations ¼, ½, 1, 5 and 10 KD in the years 1970 and 1971. The second series of the notes was also withdrawn from circulation in the February 1982. The third issue, which was put into circulation in February 1980, introduced the 20 dinar note for the first time in 1986 in Kuwait. This series was declared invalid w.e.f September 1991 due the emergency situation caused by the invasion by Iraq. For the motive to cover up for the damages done by the invasion and speeding up the lagging behind economy, the fourth series of currency notes was issued soon after the liberation of the state of Kuwait. The withdrawal of the 4th series in august 1994 made way for the launch of the 5th issue that is still in use.

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