Why is the Kuwaiti Dinar highly valued?

You would be mistaken to say that the highest-valued currency in the world is between the Euro (€), US Dollar ($) or Pound Sterling (£). In fact, the currency of the small middle country bordering Iraq and Saudi Arabia, Kuwait which uses the Kuwaiti Dinar. Its ranked the 129th smallest country by population (just 4.2 million) and 157th by land mass.

How is the value of a currency determined?

The value of a currency is usually calculated by how much demand there is for it. Some of these determinants include:

• Interest Rates: Foreign investors will trade with countries if they have higher interest rates in order to receive a higher return on their investment.
• Economic Policies: Economic policies of a government can help to strengthen a currency.
• Stability: A more stable economy will have a stronger currency. This is because foreign investors will be attracted to invest, therefore strengthening the value of a currency.

There are 4 ways a country can strengthen a currency:

(1) Sell foreign exchange assets and buy their own currency — This involves the selling of foreign government bonds which causes the other currency to depreciate while the owners currency appreciate.

(2) Higher Interest Rates — This encourages banks and financial institutions to move their money abroad in order to receive a higher return for saving.

(3) Reduce Inflation —Lower inflation makes a country more attractive which intern, increases demand. This can be achieved through tighter fiscal and monetary policy.

(4) Long-term Supply-side Policies — This involves the combination of low inflation, productivity growth, economic and political stablility. This can be achieved by cutting the cost of production.

So why is the Kuwaiti Dinar so strong?

Kuwait is one of the world’s biggest exporters of Oil, having reserves of 104 billion barrels which equates to 10% of the world’s oil reserves. This makes up 3/4 of the Kuwaiti government revenue and income aided by it being a tax-free country. By increasing their exchange rate, they earn more from exportation as their net trade is very positive. This is because their exports are worth more than their imports. The country is also very economically stable with low inflation and high interest rates which encourages foreign investment.

• 1 KWD = 3.30 USD (Kuwaiti dinar to US dollar)
• 1 KWD = 2.73 EUR (Kuwaiti dinar to euro)