'Too early for union'
KUWAIT CITY: The Central Bank of Kuwait's (CBK) decision to change the pegging mechanism is a step in the right direction and will put CBK in command of its exchange policy in standing-up to speculative action against the Kuwaiti Dinar (KD), says Chairman of Securities Group Company's (KSCC) Board of Directors, Ali Al-Mousa. He was talking to the Arab Times on Monday after CBK pegged the KD to a basket of currencies. "The measure will help CBK to effectively counter inflation pertaining to fluctuation in interest rates," Mousa added. Experts on Sunday said the move would help Kuwait curb inflation and thereby increase the purchasing power in the market. CBK clarified it was committed to the monetary union and the revaluation measure has been adopted to combat inflation. Mousa said the CBK decision does not harm the interest of the US economy and that it would in turn help the US dollar. Mousa went on to say a weaker dollar serves the interests of the US. "If the US wants, it has the means to strengthen the dollar but the current situation is working to its advantage in the sense it helps to attract foreign tourists as well as boosting its exports."
Asked whether other GCC countries will follow suit, Mousa said: "I don't think so." Mousa observed the decision will not have any negative impact on the Kuwaiti exports. Referring to the benefits of pegging the KD to a basket of currencies, Mousa went on to say it will help to stabilize prices of products. A source at a money exchange said he was expecting the measure as early as January this year and added the exchange rate between the Indian rupee and KD would be back to the February level. Director-General of Al-Muzaini Exchange Company, Jamal Zayed, said the increase in the rate of dinar from 289.19 fils to 288.11 fils-- a 0.37 percent -- had a minimal effect on the market.
However it will certainly have an effect on the money exchange offices and companies which hold accounts and assets in foreign currencies and/or currencies of the countries they are dealing with, he said. Zayed added the difference of 1.08 dinars will have its impact on investors who use Saudi or Qatari riyal or the sterling pound in transactions because the transferees will have to abide by the new rate. Zayed described the decision as wise and said it will minimize speculations on the dinar.
Jassem Al-Saadoun, a well-known economist, called the decision a mistake because the rate of inflation on one side ranges at a rate of 3 percent "which forms no risk and on the other hand inflation is always a source of fear in the world and always a main enemy for any economy." Al-Saadoun reiterated Kuwait should comply with the accords it has signed with the GCC states and before taking a decision it should be have been discussed with these countries.
Protest
Director of Treasury at the Kuwait Finance House Abdulwahab Al-Rashoud said the decision of the CBK was expected. However, he said, it came a little bit too late. He said only speculators will protest the decision. He added speculators were selling the dollars in favor of Kuwaiti dinar to gain profits, but now the rate of both currencies will be the same. Kuwaiti businessman, Qais Al-Ghanem praised the decision of the CBK and said it will positively affect the income of Kuwaiti individuals.
Al-Ghanem said the policy of the CBK is based on changes which serve the interest of local banks and Kuwait economy. Chairman of the International Company for Resorts Hussein Al-Attal also said the step taken by the CBK is in the right direction. He added the Kuwaiti dinar will restore its strength and is of the opinion the GCC states should follow suit and unshackle their currencies from the US dollar. Board Chairman of Al-Oula Co for Investment Mohammad Al-Aloush said the decision will strengthen the position of the Kuwaiti dinar through its real value in comparison to the large decrease in the value of the US dollar. Al-Aloush said some companies which basically depend on the dollar for their dealings will be relatively affected, however a large number of companies had taken precautionary measures before the decision came into effect.
Shackle
Board Chairman of the Industrial Investment Co Dr Taleb Ahmad said Kuwait decided to shackle the dinar to the US dollar three years ago when the position of the dinar was strong at that time and the decision was not wrong. However with time the value of the dollar deteriorated and it was necessary to take this decision to unshackle the dinar from the dollar. Board Chairman and managing director of the Kuwait Real State Bank Abdulwahab Al-Wazzan said the decision will help to stabilize the monetary system in Kuwait and will reduce inflation in the Kuwaiti economy. In reply to a query related to the GCC unified currency, Al-Wazzan said this will not materialize during the specified time and the CBK took the decision when it sensed the delay. Board Chairman and Managing Director of Al-Zumuroda Investment Co Jassem Zainel said the decision will make the dinar stable and help control the rate of inflation. The following are the exchange rates as of Monday: The pound sterling was trading at 571 fils against the KD, while the dollar was trading at 289 fils; Swiss franc 237 fils; euro 392 fils and the Japanese yen 236 fils.
Union
It is yet too early to think of issuing a unified currency for the Gulf Cooperation Council (GCC), Chairman of the Kuwait Chamber of Commerce and Industry (KCCI) Ali Al-Ghanem said Monday. There are plenty of matters that have to be considered regarding the relations among the GCC member states prior to thinking of a unified currency for the bloc, Al-Ghanem told the Kuwait News Agency (KUNA) noting that it "is my personal opinion." On the CBK Sunday decision, the KCCI chief expected the step would bear fruit for Kuwait's economy especially controlling inflation. "In addition, unshackling the dinar from the US dollar will set the Kuwaiti currency free, not only against the dollar but other currencies as well, which will in turn influence imports especially by the euro" Al-Ghanem said noting that US dollar tumbling against the euro had negative impact on consumers. According to Al-Ghanem, disengaging the KD from the US dollar will also curb the fluctuations of the rate of exchange.
Basket
Kuwaiti Minister of Finance Bader Al-Humaidhi said here Sunday pegging the Kuwaiti dinar to a basket of main world currencies did not mean that Kuwait had given up efforts to create a single Gulf currency by 2010. The minister made the remarks in an interview with Kuwait News Agency (KUNA). "Kuwait was, is still, and will remain one of the countries that seek to have a single Gulf currency once all required factors are provided," he said. "We will act to unify all economic and financial criteria to issue and use such a currency." Al-Humaidhi said the dinar was pegged to a basket of currencies before 2002 as its rate was determined up and down on the basis of the exchange rates of other currencies. But, he said "Over the last couple of years, we noted that the dollar markedly depreciated against other currencies. This has led to the depreciation of the dinar to levels that do not show the (real) strength and position of the Kuwaiti economy." The fact that the dinar was engaged with the dollar has also led to high inflation of approximately four percent, he said. "Unless the dinar was pegged to the dollar, inflation would not reach such a level." By disengaging the dinar from the dollar, Kuwait seeks to regain the real prestige and value of its national currency, the minister concluded.
© Arab Times 2007
