CBK's policy for the Kuwaiti Dinar (KD) exchange rate aims at enhancing the relative stability of the KD against other currencies
especially the US Dollar, and shields the domestic economy against the effects of imported inflation.
This reflects the importance of the exchange rate policy in the Kuwaiti economy where there are no restrictions on the movement of funds.
From 18 March 1975 to the end of year 2002, the CBK followed an exchange rate policy of pegging the KD to a weighted currency basket. That policy based the determination of the KD exchange rate on a special weighted basket of currencies of the countries that have significant trade and financial relations with the State of Kuwait. It had proved its effectiveness in achieving a high degree of relative stability in the KD exchange rate against major world currencies.
From 5 January 2003 to 19 May 2007, the KD was pegged to the US Dollar, in accordance with the Decree No. 266/2002 that stipulates pegging the KD exchange rate to the US Dollar within margins around a parity rate as of the beginning of the year 2003. H.E. Sheikh Salem Abdulaziz Al-Sabah, the Governor, announced the parity rate of the KD exchange rate against the US Dollar for the first day of business in January 2003 corresponding to Sunday 5 January 2003. This rate was set at 299.63 fils per dollar with margins of ±3.5%. Therefore, the KD exchange rate against the US Dollar after the 5th of January 2003 was neither to exceed 310.11 fils/dollar nor to fall below 289.14 fils/dollar. This parity rate was set using the same principles and considerations employed historically by CBK to determine the KD exchange rate under the previous system of the currency basket in order to ensure a smooth change from the currency basket peg to the dollar peg within margins. However, the period since 2003 witnessed persistent decline in the US dollar exchange rates against major currencies; therefore putting upward pressures on the KD exchange rate against the US dollar.
Starting from 20 May 2007 the KD exchange rate against the USD is pegged to an undisclosed weighted basket of international currencies of Kuwait’s major trade and financial partner countries, by virtue of the Decree No. 147/2007, thus reverting back to the exchange rate policy followed prior to 2003. In a statement to the press, H.E. Sheikh Salem Abdulaziz Al-Sabah, the Governor, indicated that the move aims at protecting the purchasing power of the national currency and containing inflationary pressures in the local economy, after having exhausted all attempts to absorb the adverse effects of USD depreciation against major currencies for an extended period of time.