KUWAIT, May 22 (KUNA) -- The governor of the Central Bank of Kuwait (CBK), Sheikh Salem Abdulaziz Al-Sabah on Tuesday renewed Kuwait's commitment to fully cooperate with other GCC member states in order to launch the united GCC currency.
Sheikh Salem, who was responding to questions on the overnight decision to un-peg the Dinar from the US currency, said the decision did not mean that Kuwait was backing down on its commitments towards the united GCC currency.
"We are persuaded that this project (united currency) should go to the end," he said. He added there was no relation between un-pegging the Dinar from the US currency and the GCC united currency.
"These are two different issues," he said and pointed out that a 2003 decision to un-peg the KD from a basket of currencies and peg it solely to the greenback was taken in line with other GCC states, whose currencies were already pegged to the USD.
He said that keeping the KD pegged to the USD was "no longer in Kuwait's interest" so it was decided to peg it once again to a basket of major currencies.
He added that the constituents of the basket would change in line with Kuwait's trade relations with foreign countries.
He said the basket would depend on Kuwait's imports and financial relations.
He dismissed conflicting reports about impending revaluation or devaluation of the KD and said a new policy would be launched "linking the Dinar's exchange value with the basket of currencies as it was the case in the 28 years before the KD was pegged to the USD in 2003."
In answer to a question on the individual rates of foreign currencies included in the basket, he said they were "secret rates, but the USD is their most important constituent."
He said he was not certain about the date of the launch of the GCC united currency. "Would it be in 2010? Everyone hopes so although some (GCC) states might not be ready by then to meet the requirements of the united currency."
He added that when technical, institutional and legislative requirements for the process (united currency) are ready, Kuwait will coordinate with other GCC member states to facilitate the launch of the united currency.
He said it was too early to predict whether or not the Dinar would be pegged to the USD once again after the launch of the united currency. He added that GCC member states would agree among themselves on the manner in which the value of the united currency would be set.
Turning to the issue of the expected impact on the Kuwaiti economy of the un-pegging of the Dinar from the USD, Sheikh Salem said the un-pegging decision would affect the national inflation rate, which was 4.1 percent in 2005 and 3.1 percent last year compared to inflation rates of one percent and 1,8 percent before the 2003 pegging process.
He stressed that central banks were always on the lookout for ways to restrain the inflation rates and indicated that if fiscal policies failed to restrain inflation, other means would be resorted to including monetary policies and allowing the Dinar's exchange value to be set by the free market.
In answer to a question by the Kuwait News Agency (KUNA) on how long it would take the Dinar to regain its former strength with regard to other major currencies, Sheikh Salem said "God only knows" because this depended on the fluctuations of those currencies.
Sheikh Salem made the remarks on the sidelines of the two-day Eighth GCC Banking Conference, which opened here Tuesday and was jointly hosted by the National Bank of Kuwait and the CBK.
