As of February 2023, the Kuwaiti Dinar (KWD) is the world’s highest-valued forex, with an alternate fee of roughly 3.30 US {dollars} per dinar. Equally, the Bahraini Dinar is the second-highest-valued forex, with an alternate fee of roughly 2.65 US {Dollars} per dinar. The Omani Rial and the Jordanian Dinar are additionally extremely valued, with alternate charges of roughly 2.60 and 1.41 US {dollars} per rial and dinar, respectively.
These currencies are extremely valued for a lot of causes, together with the truth that they’re secure, as they’re pegged to the U.S. greenback at favorable charges, which implies that their worth is tied to the greenback. This stability offers a way of safety to buyers and corporations working internationally, as they are often assured that the worth of their forex won’t fluctuate considerably.
The political scenario can also be a significant component contributing to the worth of a nationwide forex. These Arab states have secure governments with little political turmoil. This stability helps keep investor confidence, which in flip helps the worth of their currencies.
Oil industries: an essential aspect
For the Gulf states (Kuwait, Bahrain and Oman) specifically, a further profit comes into play, particularly oil revenues which are used to develop microeconomic sectors and construct infrastructure, thereby rising the GDP of those nations. This permits these nations to maintain their alternate charges excessive, which brings in additional income as their exports are extremely valued relative to their imports. In different phrases, the wealth generated by their oil trade makes their currencies extremely coveted.
As well as, Kuwait, which has probably the most helpful forex on the earth, advantages from a really lively offshore funding fund, the KIO, or Kuwait Funding Workplace, primarily based in London. Actually, the slightest information in regards to the offers dealt with by the KIO can have an effect on the worth of the forex. In consequence, this fund helps to extend demand for the Kuwaiti dinar, which contributes to its good standing.
Diaspora remittances: Considered one of Jordan’s strengths
Jordan additionally has some particular benefits which are value noting. For instance, the nation receives a excessive stage of remittances from its diaspora, that are an essential supply of international alternate inflows and account for a big share of the nation’s GDP. These inflows serve to strengthen Jordan’s exterior steadiness, which is useful to the financial worth of the monarchy.
Why is it not the case for different Gulf nations?
However one may ask why the currencies of Saudi Arabia, the UAE and Qatar are much less helpful than these of those 4 nations, when Saudi Arabia, the UAE and Qatar are additionally secure, with among the strongest economies on the earth.
The reality is, the monetary historical past of Kuwait, Oman, Bahrain and Jordan has a lot to do with these nations having extremely valued currencies.
These 4 nations pegged their currencies to different highly effective ones, primarily the pound sterling and later the US greenback, at charges that gave them a substantial benefit over different nations, together with their neighbors. Within the case of Saudi Arabia, the United Arab Emirates and Qatar, their currencies are descended from different British colonial currencies comparable to these primarily based on the Indian rupee or the Maria Theresa Thaler. In consequence, when all these currencies switched to the U.S. greenback, the currencies of Kuwait, Oman, Bahrain and Jordan, that are descended from the British pound, had a substantial preliminary benefit that was maintained by the macroeconomic stability of those states.
For instance, in 1980, when the Bahraini dinar was pegged to the Worldwide Financial Fund (IMF) SDR, it was valued at a fee of US $1 = BHD 0.376, whereas in 1986 the Saudi riyal was pegged at a fee of US $1 = SAR 3.745.
