Currency | Abbreviation | Value against USD $1 |
---|---|---|
Kuwaiti Dinar | KWD | 0.31 |
Bahraini Dinar | BHD | 0.38 |
Omani Rial | OMR | 0.38 |
Jordanian Dinar | JOD | 0.71 |
Great British Pound | GBP | 0.79` |
According to Forbes Advisor, as of 2024, these are the top five strongest currencies in the world. It is evident that the top four of these five are Middle Eastern currencies, and countries which we would expect to be higher up on this list, such as US dollars and Chinese Yen, do not come close to this value.
Pegged Exchange Rate
Like most things, the value of a currency is based on supply and demand. If there is a large demand for a currency, its value increases and if there is more supply its value decreases. It is important to note that this value is not inherent, it is value relative to other currencies. The ratio of one currency to another is known as the exchange rate.
The exchange rate is determined in the foreign exchange market. Floating exchange rates are solely based on demand and supply and can rise or fall every day, but pegged exchange rates are fixed, and pegged to a basket of currencies. Kuwait has a pegged exchange rate, fixed about a handful of important currencies such as the pound and the euro, which must mostly be US dollars.
A higher exchange rate causes exports to be more expensive for other countries, as they will have to pay in the supplier’s currency, and this can reduce competitiveness and demand for the country’s resources. High exchange rates will also cause imports to become cheaper, reducing the number of countries willing to export their goods for a lower profit. Keeping a low exchange rate enables Kuwait to stabilise itself against other currencies and reduce volatility, maintaining its high-value currency.
Kuwait also has capital control policies, for this reason, to moderate the amount of money going in and out of the country to maintain the value of their currency.
Oil
A high demand for a currency can be achieved if there is a high demand for a specific product or resource the currency’s country has to offer. Middle Eastern countries, especially Kuwait, have vast oil fields, richer with oil than any other part of the world, which they sell to other countries. When countries become dependent on this oil supply, the demand for this resource will increase. Because these resources must be bought in the supplier’s currency, the value of that currency rises.
Low Inflation
Similarly, the inflation of prices in a country can lower the value of its currency. If the overall price of goods in a country rises, the currency’s buying power will fall and the country will need to print more money. This in turn reduces the inherent value of the country’s currency. Soon, a country’s exchange rate may rise from 2 units to the US dollars 150. The consequences of a high exchange rate have been explained earlier, and increased inflation will already feed the fire.
Inflation rates in Kuwait have been incredibly low, falling from 3.37% annually in December to 3.28% in 2024. The ten years until 2022 have seen an average of 2.2% yearly inflation, lower than the Middle Eastern and North African regional average of 5.4%. This makes sure Kuwait, and other Middle Eastern countries, preserve their high-value currencies.
Low Unemployment
Kuwait also has low unemployment rates, with only 2.48% of its population being unemployed. This may be reflective of their smaller population, however, this is also a vital factor in their strong currency. Higher unemployment rates signal a weaker economy to foreign investors, and the demand for a currency may drop, resulting in a lower exchange rate. Maintaining and improving unemployment rates will improve the value of the currency.
Other Things
- High-Interest Rates- High-interest rates in Kuwait offer a high return for investors, increasing the demand for that currency
- Political stability- Kuwait is politically stable and reassures investors that the economy won’t suddenly fluctuate.
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