Monday, May 21, 2007

To Peg or Not

Kuwait yesterday removed its currency peg to the US dollar, throwing plans for Gulf currency union by 2010 into doubt and raising the prospect that other oil-producing states might abandon long-held dollar pegs.

Sheikh Salem Abdelaziz Al Sabah, governor of the Central Bank of Kuwait, told the official Kuwait news agency the decision had been made owing to the "detrimental effects of the pegging system to the national economy".

Since late last year, Kuwaiti officials have hinted that the country would revert to a basket of currencies to prevent the sliding dollar increasing the cost of imports, which has stoked inflation to more than 4 per cent, double the historic average. This has encouraged speculators to plough billions of dollars into the dinar over the past few months, betting that the central bank would allow the dinar to appreciate.

-Kuwait abandons peg to sliding US dollar

Related;
What would the IMF advice?

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