Kuwait

Kuwait initially pegged its currency to an undisclosed basket within the context of a significant banking system and a process of financial liberalisation which enabled it to move towards indirect monetary instruments. This was replaced by formal full exchange rate targeting in the early stages of plans for GCC monetary union, but Kuwait reverted to loose pegging to a basket from 2007.

Years Targets and attainment Classification
1974-2002 exchange rate pegged to USD 1974, then from 1975 to  basket (composition and weights unknown but USD thought to have largest weight), narrow central bank spreads but relatively free forex market; significant banking system (with most large banks partly state-owned), limited interbank money market from mid-1970s; some central bank independence from 1977; range of monetary policy instruments, mostly direct but gradual liberalisation of interest rates; informal stock market collapse 1982; by mid-1980s central bank offers forex swaps and deposit facility for banks; brief two-tier exchange rate arrangement 1984; government bonds issued from 1987, held mainly by banks with little secondary trading; operations in Treasury bills and govt bonds become more regular and important, and interest rates more flexible, 1988-9; Iraqi invasion of Kuwait August 1990 was over by March 1991 but caused major disruption not just to real economy (especially oil sector) but to monetary system; currency conversion replaces new dinars for old (one for one), previous exchange rate restored, and arrangements made to deal with pre-invasion bank loans, but interest rates temporarily fixed; from 1993 interest rates more flexible, OMOs in Treasury bills return as key instrument, dinar now pegged more closely to USD, with dinar interest rates moving closely with US loose exchange rate targeting LERT
2003-06 formal peg to USD with formal margins of +/- 3.5% but same narrow central bank spreads, within context of moves towards GCC monetary union (projected for 2010, later postponed); 2004-6 small revaluations of USD parity in response to USD depreciation and its implications for price stability; loan to deposit ceilings from 2004 full exchange rate targeting FERT
2007-17 replacement of USD peg by peg to (undisclosed) basket, with larger appreciation versus USD; central bank injects liquidity and develops some macroprudential tools in response to GFC loose exchange rate targeting LERT

Selected IMF references: Currency Arrangements and Banking Legislation in the  Arabian Peninsula (1974); RED 1977 pp37, 42-3; RED 1980 pp43-7, 56; RED 1982 pp38-40, 43-6; SR 1982 pp5-6; RED 1985 pp40-42, 60-61; SR 1986 p2; SR 1989 pp8, 13; RED 1990 pp37-9; RED 1992 pp18-24, 28-9; RED 1994 pp35-42, 52; REDSI 1996 pp54-62, 74-5; REDSI 1999 p85; SR 2004 p44; SR 2005 pp15, 30; SISA 2007 pp26-8; SR 2007 p13; SR 2008 p8; SR 2013 pp13-14, 21-2; SI 2017 pp27-9.

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