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May 21st 2007

Kuwait Terminates USD Peg

Since 2003, the small mid-east nation of Kuwait has effectively prevented its currency, the Dinar, from fluctuating by fixing it to the USD.  Last week, however, it became the latest casualty of a falling dollar and was forced to scrap its peg and instead link the Dinar to a basket of currencies. While the stability that accompanied the peg was certainly a benefit, as was the sudden boon provided to Kuwait’s economy by an artificially cheap currency, the Central Bank ultimately decided that the country’s economy could no longer bear the inflationary pressures generated by the peg.  Many Kuwaiti senior policymakers fought the change tooth and nail because they fear it will hinder the region’s efforts to form a common currency, but Kuwait insists that it is still committed to a common currency.  The Kuwait Times reports:

The decision will help reduce “imported inflation.”  The planning ministry said last week that the inflation rate reached 5.1 percent in the first quarter.

Read More: Kuwait drops dollar peg

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