Kuwait to link dinar to dollar

Kuwait, ending a 27-year-old policy, said yesterday it will fully link the dinar to the U.S. dollar from 2003 as part of a plan by six Gulf states to forge a single currency.

Kuwait's government annou-nced the measure following its weekly meeting yesterday. It said in a statement sent to Reuters that a draft decree sanctioning the move was passed and would go to His Highness Emir Sheikh Jaber Al Ahmed Al Sabah for his approval.

It would take effect from January 1, 2003.

The currencies of Opec members Saudi Arabia, the UAE, Qatar and independent oil exporters Bahrain and Oman are already tied to the dollar.

The Kuwaiti dinar is the only Gulf Arab currency linked to a weighted basket of currencies. It was introduced in March 1975. This is dominated by the dollar but includes the euro and the Japanese yen, which has helped the dinar enjoy relative stability.

It was trading yesterday at 0.302 dinar to the dollar.

The GCC states agreed last year to set up a single currency by 2010 as part of wider plans for a common market and a customs union - steps needed to facilitate dealings with their main trading partner the European Union.

"The Kuwaiti dinar has been relatively stable against the dollar for a number of years now ... moving against other currencies with the dollar," chief economist Randa Azar-Khoury of National Bank of Kuwait (NBK) said.

"So effectively, people will feel little difference in the shift to a full dollar peg," she added.

In 2001, the dinar exchange rate against the dollar moved within a narrow margin of 1.2 per cent while the dollar moved by about 12.5 per cent during the period against the yen and the Swiss franc, a study by Kuwait's Central bank showed.