Kuwait drops dollar currency peg
Kuwait unshackled its dinar from the tumbling US dollar on Sunday and switched the exchange rate mechanism to a basket of currencies, throwing plans for currency union with other Gulf Arab oil producers into disarray.
Kuwait\ufffds central bank, which battled speculators for weeks to defend the peg, said the dollar\ufffds slide against other currencies had forced it to break ranks with fellow Gulf states to contain inflation from the rising cost of some imports.
The move stunned Gulf currency markets and volumes dried up. The impact would be clearer on Monday when global markets open, said Steve Brice, chief Middle East economist at Standard Chartered Bank in Dubai. Oman and Bahrain, the two smallest Gulf economies, and Saudi Arabia, the largest Arab economy, said they planned to stand by their pegs.
Interesting move. I have no idea what the long term consequences will be, they could be the first in a flood or the other oil countries could pressure them back in line, or nothing could result. But it is certainly a sign that Kuwait's central bank doesn't think the dollar is going back up any time soon.
Jay