Saturday, April 28, 2007

Show Me the Money

The United Arab Emirates Central Bank Governor on Thursday ruled out any immediate revaluation in the UAE dirham and said that Kuwait had committed to keeping its currency trading band unchanged.

The Daily Star - Kuwait Edition - Published by Alwatan.

We were having a debate last week at work on what to do with our USD deposits. This is in light of the speculation that the KD will be revalued up against the dollar. So your dollars will be worth less should this happen. Even though the Central Bank of Kuwait keeps saying that it is sticking with its policy of fixing the KD to the dollar, there is much speculation as the dollar continues to decline dragging the KD with it unnecessarily.

In a previous post I argued against pegging the KD to the dollar. The pegging is part of GCC plan to unify currencies by 2010, which is now in much doubt. In an environment of increasing oil prices and budget as well as trade surpluses, the KD is artificially weakening because it is tied down by the dollar. And because the KD is weakening it takes more of it to import goods leading to inflation. The market seems to believe that this will not last for long and the KD will be revalued; hence the shift of dollar deposits into KDs. The Central Bank keeps denying and discouraging speculation by lowering KD rates (so those shifting their dollars to KDs will deposit at lower rates). So back to our USD deposits, we followed the market (but shhhh don't tell the Central Bank).


Anonymous said...

Couldn't understand a word!!!!!! Is it because I'm sleepy!! or is it the economic language :$

I'll try to reread it tomorrow :)

Anonymous said...

Oh and shotgon :P I'm the first here ;)

Bu Ziyad said...

deem: i thought id beat you to it before you re read in the morning :p dont worry if you dont get it is probably a mix of both and my botched up explanation! il give you a take away point: the kd in your hand is cheap.. but after all isnt money dirt anyways? :p and congratulations on being first.. in economic terms its called first mover advantage!

1001 Nights said...

Interesting info considering our inflaion rate is about 4% now (right?)

All I know is that they'd be doing people a big favor if they revalued before the summer travel season hits. EE wallaaa show me the money!

Closet Diva said...

The Kuwaiti government has a lot of investments in the US....around 60% of its assets is in the US market. Thats a huge chunk -I don't think they intend to revalue the KD anytime soon!

Grey said...

It worries me , 2005 revaluation cost me KD15 less from my salary , i hope it doesn't happen anytime sooon !

Bu Ziyad said...

nights: with the pound at 2 dollars i dont want to go to london!

diva: kinda like catch 22 cause if you revalue you will have less in KD terms but your kd would be worth more in real terms (buying power)..

wolf: you get paid in dollars?! i guess that's 15 cups of coffee from starbucks.. not even!

Anonymous said...

"the kd in your hand is cheap.. but after all isnt money dirt anyways"

Oh thaaaaaank you,, isn't this easier from that complicated language :P Now I understand :D

Cuz I've been reading that today early morning and still...hmmmm :)

I'm sure its about the time i'm reading your post! Late night or early morning,, in both i'm sleepy :P

And yes i'm the first mover advantage ;)

Grey said...

No i get paid in Dhs, sicne Dhs is pegged to $ the exchange rate changed and we are getting paid less !

rubicon said...

thanks for the opinion buziyad. i've been following this topic closely for the last few weeks and will be taking action to increase exposure to the KD . email me if you need details.