If you are living in Kuwait, you know the standard of living there is very high. It is because Kuwait is one of the wealthiest countries in the world based on per capita income. Its currency, the Kuwaiti Dinar, is the strongest currency globally, with immense purchasing power. There are numerous benefits of a strong currency, given that it stays strong. 

Historically, Kuwait Exchange Rates have stayed more or less stable for many reasons. In this article, we will be taking a dive into the many factors affecting exchange rates. We will also take a look at the effects of exchange rates on everyday life. 

What is currency exchange?

Before we begin our discussion on Kuwaiti Dinar, it is essential to understand what exactly currency exchange rates are. 

Exchange rates refer to the prices of one currency in terms of another. In other words, they're the cost of one country's money in another country's money. Therefore, exchange rates can fluctuate depending on various factors such as economic performance and political stability. 

For example, if a country's economy is doing well, investors tend to invest in its stock market, demand for its currency will increase, and the value of its currency will go up. This means that it now costs more units of that currency to buy a unit of another currency. Conversely, if a country's economy isn't performing so well and confidence in its stock market is low, demand for its currency will decrease, and its value will go down. This means that it now costs fewer units of that currency to buy a unit of another currency. 

What is Kuwait Exchange Rate?

Kuwaiti Dinar is the strongest currency in the world today, thanks to the solid oil-based economy and sound policymaking by the government of Kuwait. Currently, against the US Dollar, its rate stays stable at 1:0.3 Dollars. It is a well-performing currency due to the high volume of oil trade where it is required for payments, hence the high demand and value. 

The reason for the stability of KWD is the fixed exchange rate or pegging. It means setting the exchange rate against a stable currency at a particular value which cannot change much. However, a minor deviation is allowed to account for inflation and market fluctuations. 

KWD was introduced in 1961, and its value was pegged to the British Sterling Pound for the initial period. However, since 1975, it has been pegged to a basket of currencies (except for four years between 2003-07, when it was pegged against the dollar). Although pegging can sometimes lead to the currency's overvaluation, the Kuwait exchange rate has stayed stable because of the strong economy. Therefore, its pegged value is well justified. 

What Determines Exchange Rates?

Three main factors affect the exchange rate of a currency. They are:

  • The country's economic fundamentals - The economic fundamentals of a country basically refer to the strength of its economy. This determines how desirable a country's goods and services are in the global market. For example, the US and UK economies are robust and desirable, so the US dollar and British pound are both strong, which means that it takes more of these currencies to buy a unit of a different currency.
  • The country's political and financial stability - The political and financial stability of a country largely determines how attractive it is to investors and traders. If a country has a high political and economic stability level, it will be very attractive to investors and traders. As a result, the demand for its currency will increase, the value of its currency will go up, and it will cost more units of a different currency to buy a unit of its currency.
  • The country's trade balance - The trade balance refers to the difference between the value of the goods it imports and the value of the goods it exports. If the imports are more than exports, the country has a trade deficit. Conversely, it has a trade surplus if the exports are more than imports. If a country has a trade deficit, there will be less demand for its currency, and the value of its currency will diminish. If a country has a trade surplus, there will be more demand for its currency, and the value of its currency will go up.

How does Kuwait Exchange Rates impact daily lives?

The impact of the Kuwaiti Dinar's strength can be felt in everyday life. If you are living in Kuwait, you enjoy: 

  • Lower Inflation
  • Lower Price of Imported Goods
  • A sense of Wealth
  • More income to send home (for Expats)

Conclusion

The impact of Kuwait Exchange rates on the daily lives of the population of Kuwait is undeniable. A strong currency is the sign of a strong economy, and as a result, the people of Kuwait enjoy higher incomes and better standards of living. 

The fact that KWD is one of the most stable currencies in the world only makes it better to live in Kuwait and enjoy continued prosperity. You can check its value against all major currencies online.