World’s most expensive currency, why Kuwaiti Dinar is world’s most expensive currency, Gulf Rupee, Maintaining a currency(1)

World’s most expensive currency

Hello friends, now $1 is about be quite ₹75 and €1 has crossed the mark of ₹85 but do you know, more expensive than these currencies is the world’s most expensive currency. Can you guess which currency it is? Let me tell you it is Kuwaiti Dinar; 1 Kuwaiti Dinar is almost equal to ₹250. The question then arises what is so special in 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. In today’s article, let’s try to understand it. Kuwaiti Dinar is the most expensive currency.

History of Kuwaiti Dinar

Before taking about the Kuwaiti Dinar, we have to look into the history of Kuwait. You might be shipped to know friends that 70-80 years ago the currency used in Kuwait was issued by the Indian Government. Yup, you heard that right, the Reserve Bank of India used to print Kuwait’s current at that time and that currency was named Gulf Rupee. It was quite to Sunday to the Indian Rupee; it looked like this and on the note you can see that ‘ Government of India’ is written. The numbering in the Indian Rupee and the Gulf Rupee different only by a letter. The number of the Gulf Rupee used to start was a ‘Z’. The specialty of the Gulf Rupee was that it could not be used in India it was used in foreign only.

why did Kuwait need to use a current that was being issued by the Indian Government?

The next question to arise here is that; why did Kuwait need to use a current that was being issued by the Indian Government? The answer to this is hidden in history. For almost 200 years from 1763 till 1961, the British Empire had control over the Persian Gulf area, in this area lied the country Kuwait, Kuwait was not totally under the control of the British Empire through the years, there was varying degrees of control over Kuwait. Here, the British India Government saw that economy of Kuwait was quite small, they didn’t see the beef to have a new currency for it, it was much easier to use the same currency that was being used in India. So, the initial decision was of the British India Government to use same currency but in 1947, when India got independence so India saw this practice and permitted Kuwait to continue using the Indian Rupee. Till this point the exact same Indian Rupee being used in India and Kuwait.

Remember, this was the time when Kuwait’s economy was small because the Oil Boom had not happened yet. Every though oil was discovered in Kuwait in the late 1930s but because of World War II, Kuwait couldn’t sell much oil to rest of the world. This started happening in the 1960s but sunned years after India’s Independence India faced a problem of Gold Trafficking. Large scale gold trafficking was happening in the Gulf area, the smugglers would sell the gold  in India and they got Indian Rupee in exchange they would then take the Indian Rupees into the Gulf countries to get it exchanged into other foreign currencies.

History of Gulf Rupee

The Indian economy had to suffer huge losses because of this for this reason, the Indian Government decided to introduce a different currency for the Gulf area called Gulf Rupee. It could be converted with 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 becomes the first Arab country to conduct is parliamentary elections and to create a constitution.  By the 1970s, it progressed so well that Kuwait become that developed country in the area. In fact, in terms of freedom as well Kuwait becomes one of the top countries at that time. You may find it unbelievable but this the truth.

In the early 1960s, Kuwaiti Dinar is introduced by the new Kuwaiti Government and it’s priced at ₹13.33 = 1KD. By 1966, Gulf Rupee remains in circulation but after that Indian Government had to devalue the Indian rupee for several reasons. One, India had to go through wars with China and Pakistan but because of this devaluation these Gulf countries are affected and they are forced to create their currencies. Oman, Qatar, UAE, all these countries create their own currencies after this. In 1975, the exchange rate of the Kuwaiti Dinar is fixed to a basket of currencies. Basically, there are three types of exchange rates Fixed, Floating and Mixed. Fixed means that you fix the exchange rate of your currency with some other currency and based on that currencies value, the value of your currency fluctuates, suppose you create a new currency and you fix the value of your new currency to be $5 with the fluctuations in the Dollar then the value of your currency will also fluctuate.

The floating exchange rate means that with the supply and demand in the market then the value of the currency will fluctuate, it will float and mixed exchange rate of the combination of the both. The Indian rupee also had fixed change rated till the 1990s, only after the liberalization of the economy happened in India then the Indian rupee was brought under the floating exchange rate. Today, most of the currencies of the world are on floating exchange rate or the mixed exchange rate with the exception of the currencies of the Gulf countries like the Kuwaiti Dinar, that if still working on a fixed exchange rate. Kuwaiti Dinar is the world’s most expensive currency.

Why has Kuwait kept the exchange rate of its currency even today?

Obviously, the next questions to arise is that why has Kuwait kept the exchange rate of its currency even today? And who why has not India kept it fixed? Fixing one’s currency or pegging it, it is also known as peg. The downside is that you have to depend on other currencies regarding the economy of your country. If you Peg your currency to the US Dollar then if the US Dollar crashed tomorrow. If the US’s economy falls then the economy of your country will also fall because your currency is based on the US Dollar. To avoid this to a large extent Kuwait has pegged its currency with a basket of currencies instead of pegging it with the US Dollar only but now the second problem is that when you Peg your currency then you have to maintain that peg and to maintain that you need a sufficient supply of foreign exchange reserves in your country.

Maintaining a currency?

What does maintain mean? For any currency to bear the charges in the demand and supply in the market is unavoidable. Irrespective of whether you’re on a floating exchange rate of fixed. The difference between is that on the fixed exchange rate, the forced of supply and demand need to be counteracted by your government by using forging 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 for it was that India’s foreign exchange reserves were so low that they could sorry only 3 weeks imports. This is the benefit of the floating exchange rate if the unemployment 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 of reducing the interest rates or by devaluing the currency, to revive growth. These are not possible in the fixed exchange rate. I’ve listed out so many disadvantages of the fixed exchange rate system but why do the Gulf countries still use this system even today?

Why countries still peg their currency?

The simple reason for it, all of these countries’ economies are based on oil and like all of us know, the price of oil is very volatile, it fluctuates rapidly. If these countries start using the floating exchange rate then with the demand and supply of oil the currencies of these countries will keep on fluctuating rapidly, their values will change every moment. To avoid this, they still use of 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 they have a lot of US Dollar in reserve so they wouldn’t struggle to maintain the peg. Kuwait has one of the latest global reserves of oil and on the basis of this industry, Kuwait can maintain its high value peg.

why does not Kuwait keep its currency on a much more ‘fixed’ exchange rate?

Speaking theoretically, why does not Kuwait keep its currency on a much more ‘fixed’ exchange rate? Today ₹250 = 1 KD why does not Kuwait say that ₹1000 should be equal to 1KD? That they want to ‘fix’ the exchange rate of their currency at that high a level. Theoretically speaking, Kuwait can do this but then it will difficult to maintain that peg because that much foreign reserve would be needed to maintain it. Today, the forces of supply and demand in the market, there are multiple forces based on those, the value of a currency that is calculated is the most appropriate point to maintain the peg on. For example, a major factor here is the balance of payments the money that is coming into Kuwait through foreign investments or exports is much more than the money going out of Kuwait through imports or investments of 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 of high thus raising its value.

Non-government owned currencies

By the way, among all these currencies if we include the non-government owned currencies as well then the most valuable, the most expensive currency of the world will actually be the Bitcoin because the value of 1 Bitcoin of almost ₹35,80,486.30 and in comparison with the other currencies why the value of Bitcoin so high? For the same reason because it has a high demand, people actually want to buy it.