Why The Kuwaiti Dinar is Such an Expensive Currency

The Kuwaiti dinar is the national currency of the State of Kuwait. Primarily, it is interesting because it is the single most expensive national currency that can be found on the planet, though interested individuals shouldn't read more into that fact that what the situation warrants. Here's what you don't know about this foreign currency.

How Did the Kuwaiti Dinar Come Into Existence?

For those who are curious, the earliest roots of the Kuwaiti dinar can be traced to the Roman denarius. In short, the Romans started using silver coins because of their trade with the Greek cities that could be found on the Italian peninsula. The denarius wasn't the first Roman silver coin, but it was the most successful Roman silver coin, as shown by how it started seeing use in 211 BC and continued to be minted until the Tetrarchy from 293 to 313 AD.

However, the important part is that the denarius became very influential because the Roman Empire was very powerful and very prestigious. As such, the influence of the denarius can still be seen in a wide range of contexts in the present day, which speaks volumes about its extent. One excellent example would be how the British used "d" as a shorthand for pennies until the 1970s, while another excellent example would be how the Italian, Spanish, and Portuguese words for money are denaro, dinero, and dinheiro.

In time, the Roman Empire split into two, with one being the Western Roman Empire and the other being the Eastern Roman Empire. Generally speaking, the Western Roman Empire is considered to have fallen when Flavius Odoacer became King of Italy by removing the last Western Roman Emperor Romulus Augustulus from his throne. In contrast, the Eastern Roman Empire is considered to have continued until 1453, which was when the Ottoman Sultan Mehmed II succeeded in conquering Constantinople. As such, this means that when Islam rose out of the Arabian peninsula, the Islamic caliphates were influenced to a considerable extent by the Romans. For proof, look no further than the fact that the fifth Caliph of the Umayyad dynasty issued a coin called the gold dinar, which is of course named for the Roman denarius as well.

Unsurprisingly, the Islamic caliphates were very influential in the Islamic world, which is why the term "dinar" sees widespread use in countries that are either Islamic or have been influenced by Islam to a considerable extent. As such, when Kuwait gained independence from the United Kingdom in the 1960s, the Kuwaiti Currency Board created a new national currency called the Kuwaiti dinar to replace the Gulf rupee that had been used in the region prior to that point in time. For a while, the Kuwaiti dinar continued to see use alongside the Gulf rupee until India devalued the latter currency's value versus the Indian rupee, which caused its use in the Persian Gulf to plummet. Something that in turn, provided the Kuwaiti dinar with a clear path to its current status.

Why Is the Kuwaiti Dinar So Expensive?

Regardless, there are a lot of people out there who will be curious about why the Kuwaiti dinar has such a high value. However, before explaining that, it is necessary to explain something about the nature of exchange rates. In short, countries can have three kinds of exchange rate regimes, which can be summed up as either floating, fixed, or a mix between the two. Like the names state, floating means that the exchange rate is permitted to change based the interactions of market forces, while fixed means that the exchange rate is pegged to either a particular currency or a particular basket of currencies. It isn't uncommon for countries to mix these two systems, thus resulting in what are called hybrid exchange rate regimes.

Anyways, the Kuwaiti dinar is pegged. Initially, it was pegged to the pound sterling, which would be the national currency of the United Kingdom plus various British territories. However, changing circumstances mean that the Kuwaiti dinar has been pegged to various other things since that time. For instance, it was pegged to a basket of currencies chosen by the Kuwaiti Currency Board from 1975 to 2003. After which, the Kuwaiti dinar was pegged to the U.S. dollar at 0.29963 Kuwaiti dinars to 1 U.S. dollar in 2003. Something that continued until 2007, which was when the Kuwaiti Currency Board switched back to a basket of currencies.

Of course, maintaining a peg is much easier said than done. Certainly, countries can say what they want about the official value of their currencies, but if they want their words to have power, they need to use various tools to make it so. Something that isn't possible unless their tools have economic power behind them. In the case of Kuwait, it has an economy that is very reliant on petroleum products, so much so that more than 80 percent of the Kuwaiti government's revenues come from said source. Moreover, the Kuwaiti government has been pouring a lot of resources into the sovereign wealth fund set up by the Kuwait Investment Authority, which is a sensible move in preparation for the future.

Does This Matter?

With that said, it is important to note that the value of the Kuwaiti dinar relative to other currencies is pretty much meaningless in most contexts. Kuwait is a small country, meaning that people outside of Kuwait have very little reason to make use of Kuwaiti dinars. Furthermore, since the Kuwaiti dinar is a very stable currency, there is no real point to speculating on its price unless interested individuals believe that it is set to see some kind of fundamental change in the not so distant future. Finally, it should be mentioned that the exchange rate of a particular currency doesn't actually say much about the strength of the national economy that stands behind it, meaning that there is very little point to boasting about high values in this context.