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.
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).