By Mohammad Al-Molah, NNN-KUNA
Kuwait : Re-pegging the Kuwaiti dinar (KD) to a basket of currencies on May 20 gave flexibility in setting the dinar's exchange rate in comparison to major currencies, said the Central Bank of Kuwait (CBK).
Speaking to KUNA Sunday, CBK's Governor Sheikh Salem Abdul-Aziz Al-Sabah said this flexibility targeted strengthening monetary stability and keeping track of continuous developments in the exchange rates of major currencies in international markets.
Re-linking the KD with a special and undeclared basket of currencies of nations that have exceptional economic ties with Kuwait was adopted for a number of reasons, he added.
Opting to peg with a basket of currencies instead of the US dollar took place on May 20 as a qualitative change in the policy of setting the KD's exchange rate and that boosts the national currency in terms of exchange rates, he explained.
The inability to distinguish between last May's change in the exchange rate policy and development of the KD's exchange rate would confuse those interested in the KD's exchange rate factors, he noted.
For example, he said, the KD's exchange rate fluctuating movement before the USD was a result of pegging with the basket to determine the dinar's rate.
Based on that, he said, the exchange rate of major of currencies to one another at international markets would help the bank in determining the KD's best exchange rate to them.
He said linking with the basket of currencies meant that the USD's hike or plunge before other currencies, including the KD, would affect the dinar's decline or gain before the other currencies.
The increase or decrease in the KD's exchange rate before any currency does not mean that CBK has changed its policy adopted last May in terms of the special basket of currencies, he said.
Sheikh Salem added that the switch in the peg was not associated with a major change in the USD-KD exchange rate as markets needed time to adequately absorb linking with the basket of currencies.
He said CBK took into consideration the market's need for clearer indications regarding the peg's affects as a means to efficiently implement the basket of currencies system in setting the KD's exchange rate.
The bank, he added, had sufficient expertise in the basket system to boost monetary stability and confidence in the KD.