Why The Omani Rial is Such an Expensive Currency
Omani Rial stands as the third strongest currency in the world today. At market prices, 1 Omani Rial = US$2.6008; this is astonishing to many owing to the fact that Omani doesn't have such a strong economy.
So why exactly does Omani hold a stronger currency than many of the developed nations? When the Omani Rial was established, its initial value set to 1 Omani Rial= US$ 2.895. The country managed to maintain this value until 1986 when the rate was changed to 1 Rial = 2.6008 USD.
At this rate, the Omani government buys the US dollar at 0.384 Omani rials and sells it at 0.385 rials. This makes Omani one of the few counties that make a significant profit over the dollar in the world. The Omani dollar stands as the third strongest currency in the world after the Kuwait Dinar and the Bahrain Dinar.
Understanding The Face Value Of Currencies
As you can see, all the top three currencies hail from countries that cannot compare economically with the US or the other G8 countries. In essence, having a stronger currency does not necessarily mean having a better economy.
However, the economic status of a country also plays an important role in maintaining the face value of a currency. The initial face value of a currency is arbitrary. Each country has the power to set its currency value to any figure they want, as long as it is reasonable. For instance, 1 US dollar is made up of 100 US cents.
The value set by a county for its currency will remain constant, depreciate, or appreciate depending on the economic performance of that country. A country that is economically vibrant can experience a significant appreciation in its currency. The key factors that affect the value of currency include market instability, inflation, devaluation, and international policies.
Currencies for countries that are economically stable tend to remain constant for a long time. This explains why the entire world references their currencies to the US dollar. The dollar is stable owing to the stable economy of the United States.
History Of The Omani Rial
To Understand the strength of the Rial, we have to go back in time and look at its formation. Until the 1940s, Omani did not have an official currency. The Indian Rupee and the Maria Theresa Thaler were the official currencies used in Omani and Muscat. Maria Theresa Thaler was valued at 230 Paisa.
In 1940- 1946, several coins were introduced( Gulf rupee) to be used in Dhofar and Omani. The coins were denominated based on the baisa with 200 baisas being equivalent to 1 rial. In 1966 India devalued the Gulf Rupee in comparison to the Indian Rupee. This led to several states developing their own currencies.
However, Omani continued to use the Gulf Rupee until 1970.
In 1970, the Rial Said was introduced in Oman to replace the Gulf Rupee. The Rial Said was named after the house of Al Said. The Rial Said at the time was equivalent to 1 British Pound. In 1973 the Rial Said was subdivided into 1000 baisa to form the current Omani Rial.
At the time the currency was pegged at 1 Omani rial = 2.895 USD. In 1986 the rate was devalued to stand at 1 Omani rial = 2.6008 USD. The changes to the currency in Omani have been linked with political power shifts in the region.
The change of the name to Omani rial was due to regime change. Since 1975 the currency has maintained the same face on the currency and the country name as Omani.
How Does Omani Maintain The Face Value Of Its Currency?
A country setting its currency at 2 USD is one thing but maintaining it is a totally different story. For Omani to have maintained the currency value from `1970 to this day there must be something unique about its economy.
Without economical power, any currency can easily lose value over time. However, the Omani Rial has maintained its stability for over 5 decades.
The first reason why the Omani currency is so high is that it was divided into 1000 baisa. Most countries usually divide their currencies into 100 units. Given that the rial is divided into a 1000 baisa, the currency had to have such a high value in order for the baisa to be worth anything.
The subdivision to 100 valuable units versus the other countries subdivision into 100 units gives the Omani Rial a relatively high value. This also applies to the other top currencies such as Bahrain and Kuwait Dinar.
With that said, Omani has maintained the value of its rial for over 5 decades at the same rate as the US dollar. The main reason for this stability is the relationship between Omani and the United States. The Rial has been worth 2.6 USD since 1986. To maintain this value, Omani retains a significant reserve of US dollars.
Given that Oman is one of the leading oil producers in the world, its economy is pegged on oil prices. Since oil is valued in USD, Omani receives a lot of revenue in US dollars and holds on to the money to maintain its high-value currency. The main factor that maintains Omani currency stable is the oil supplies to the US and the rest of the world.
Conclusion
The Omani Rial currently stands as the third-highest valued currency in the world. For what it's worth, the Omani currency is relatively too high for the country's economy. However, based on the fact that the face value was set a 1000 baisa, it is understandable to have the Omani Rial at such high values.
Even with that said, Omani has managed to maintain the set face value for the Rial since 1986. The main reason behind the stability can be traced back to the fact that the economy is reliant on oil. Oil exports are valued in US dollars. To maintain the value of the rial, Omani holds on to a significant amount of US dollars. The reserves help maintain the currency at its rate for as long as it is producing oil.
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Written by Bill Vix
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