CBK's policy for the Kuwaiti Dinar (KD) exchange rate aims at maintaining and enhancing the relative stability of the KD against other currencies,
and shielding the domestic economy against the impacts of imported inflation. These responsibilities reflect the importance of the exchange rate policy
in the Kuwaiti economy where no restrictions are imposed on the movement of capital.
During the period from 18 March 1975 to the end of the year 2002, CBK adopted an exchange rate policy 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. This policy proved to be effective in achieving a high degree of relative stability of the KD exchange rate against major world currencies.
Between 5 January 2003 and 19 May 2007, the KD was pegged to the US Dollar according to the Decree No. 266/2002 stipulating the peg of the KD exchange rate to the US Dollar within margins around a parity rate effective the beginning of the year 2003. The Governor at that time, H.E. Sheikh Salem Abdulaziz Al-Sabah, 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. The exchange rate was set at 299.63 fils per dollar with margins of ±3.5%. This parity rate was set based on the same principles and considerations approved historically by CBK in determining 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.
Effective 20 May 2007 by virtue of the Decree No. 147/2007, the KD exchange rate was repegged to an undisclosed weighted basket for international currencies of Kuwait's major trade and financial partner countries. H.E. Sheikh Salem Abdulaziz Al-Sabah, the Governor, indicated in a statement to the press at that time that reverting to the exchange rate policy followed prior to 2003 aims at protecting the purchasing power of the national currency and containing inflationary pressures affecting the local economy, after having exhausted all attempts to absorb the adverse effects of US Dollar depreciation against major currencies for an extended period of time.