Now, one dollar is roughly equal to 80 rupees. And one euro has surpassed the 83-rupee mark. And one pound has almost reached the century mark. But do you know the world’s most expensive currency? Can you guess which currency it is? “Kuwaiti dinar.” 1 Kuwaiti dinar is almost equal to 250 rupees. But now the question arises: What is so special about the Kuwaiti dinar that it has become the most expensive currency in the world? Whereas the US dollar, the most popular currency in the world, is not as expensive as the Kuwaiti dinar. Let’s give it a look. Before talking about the Kuwaiti dinar, we need to inculcate the history of Kuwait. You might be flabbergasted to know that 70–80 years ago, the currency used in Kuwait was issued by the Indian government. Yes, the reserve bank of India used to print Kuwait’s currency, which was named the Gulf rupee. For almost 200 years, from 1763 to 1961, the British Empire had control over the Persian Gulf area. Kuwait is located in this region. Kuwait wasn’t totally under the control of the British empire throughout the year; there were varying degrees of control over Kuwait. Here, the British Indian government saw that the economy of Kuwait was quite small. They didn’t see the need to have a new currency for it. In 1947, when India got independence, India practised and permitted Kuwait to continue using the Indian rupee. Up until this point, the Indian rupee was being used in India and Kuwait. Remember, this was the time when Kuwait’s economy was small because the oil boom hadn’t happened yet. Even though oil was discovered in Kuwait in the late 1930s, because of World War II, Kuwait couldn’t sell much oil to the rest of the world. This started happening in 1960. However, a few years after independence, India encountered a problem with gold trafficking.Large-scale gold trafficking was happening in the Gulf area. The smugglers would sell the gold in India, and after getting the Indian rupee in exchange, they would then take the Indian rupees into the Gulf countries to get them exchanged into other foreign currencies. The Indian economy had to suffer huge losses because of this. In 1959, the Indian government decided to introduce a different currency for the Gulf area, called the Gulf rupee. It could be converted into the Indian rupee in a 1:1 ratio, but the Gulf rupee would not be allowed to be used in India. With this, smuggling could be controlled to quite an extent. After this, in 1961, Kuwait got independence from the British, and in 1963, Kuwait became the first Arab country to conduct its own parliamentary elections. and to create a constitution. By the 1970s, it had progressed so well that Kuwait became the most developed country in the area. In fact, Kuwait currently ranks among the top countries in terms of press freedom at the time.Kuwait was known for its liberal values; even now, the press freedom index ranking of Kuwait is much better than India. In the early 1960s, the Kuwaiti dinar was introduced by the new Kuwaiti government. Furthermore, the price has been set at 13.33 Rs per KD.By 1966, the Gulf rupee remained in circulation, but after that, the Indian government had to devalue the Indian rupee for several reasons. India had to go through wars with China and Pakistan. But because of this devaluation, these Gulf countries (Oman, UAE, and Qatar) are affected. And they were forced to create their currencies. There are three types of exchange rates:
- The fixed exchange rate
- floating exchange rate
- mixed exchange rate
The fixed exchange rate means that you fix the exchange rate of your currency with some other currency. Based on that currency’s value, the value of your currency fluctuates. Suppose you create a new currency, and you fix the value of your new currency at $5. With the fluctuations in the dollar, the value of your currency will fluctuate.
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The floating exchange rate means that, with the market’s supply and demand, the currency’s value will fluctuate. It’ll float. And mixed is the result of combining the two.
Today, most of the world’s currencies are on floating exchange rates or mixed exchange rates, except for the currencies of the Gulf countries, like the Kuwaiti dinar, which is still working on a fixed exchange rate. It is not tied to a single currency; rather, it is tied to a basket of currencies (such as 30% dollars and 20% pounds, with different currencies in different proportions). And their combined ratio is set to the Kuwaiti dinar). The next question that arises is: why has Kuwait kept the fixed exchange rate of its currency even today? And why did India put its currency on a floating exchange rate? What are the advantages and disadvantages of it? (This is also known as “pegging” one’s currency.) The downside is that you have to depend on other currencies regarding the economy of your country. For example, if you peg your currency to the US dollar and the US economy falls, then the economy of your country will also fall. because your currency is based on the US dollar. To a large extent, Kuwait has tied its currency to a basket of currencies. instead of pegging it with our dollar alone. But now the second problem is that, when you peg your currency, you have to maintain that peg. and to maintain that, you need a sufficient supply of foreign exchange reserves in your country. What does “maintaining” mean? Look, for any currency, adjusting to the changes in demand and supply in the market is unavoidable. Irrespective of whether you’re on a floating exchange rate or a fixed exchange rate, the forces of supply and demand need to be counteracted by your government by using foreign exchange reserves to maintain the value of your currency. When India shifted the Indian rupee to a floating exchange rate in the 1990s, one of the reasons was that India’s foreign exchange reserves were so low that they could support only three weeks’ worth of imports. This is the benefit of a floating exchange rate: if the unemployment rate in the country is rising or the economy is in a bad state, then the central bank can control the supply of money by increasing the supply, reducing interest rates, or devaluing the currency. to revive growth. These are not possible at the fixed exchange rate. With a lot of disadvantages to fixed exchange rates, why do most Gulf countries still use this system? The simple reason for it, friends, is that the economies of these countries are based on oil. and like all of us know, the price of oil is very volatile. It fluctuates rapidly. this country starts using floating exchange rates, and then, with the demand and supply of oil, the currencies of these countries will keep fluctuating rapidly. Their worth fluctuates at all times. To avoid this, they still use the fixed exchange rate system. And Kuwait does not lack foreign exchange reserves. Because this country has earned a lot of money by selling oil and has a lot of US dollars in reserves, they wouldn’t struggle to maintain the peg. Kuwait has one of the largest global reserves of oil. and based on this oil industry, Kuwait can maintain its high peg. Today, based on the forces of supply and demand in the market (there are many forces), the value of a currency that is calculated is the appropriate point to maintain the peg at. For example, a major factor here is the balance of payments: the money that is coming into Kuwait, through foreign investment or exports, is much more than the money going out of Kuwait. Imports or investments by the locals in foreign countries are much more than the money going out of Kuwait. through imports or investments by the locals in foreign countries. It means that foreigners are buying more goods and services from Kuwait and are investing there. So the demand for the currency is high. By the way, friends, among all these currencies, if we include the non-government-owned currencies as well, then the most valuable and most expensive currency in the world will be bitcoin. because of its popularity Before concluding, I would like to tell you another thing. Always remember that the value of the currency is not an indicator of the economic performance of a country. historically. One pound has always been worth more than one dollar. But this doesn’t mean that the economy of the UK is stronger or that the UK is more powerful than the US. It is not so. All of us know that the US is bigger than the UK. And today, the US is more powerful than the UK. And this is the reason, friends, that despite having the world’s most expensive currency, Kuwait has gone through an economic crisis. That started with the COVID-19 pandemic, when the oil market price crashed.