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From dollar peg to basket peg:the experience of Kuwait in view of the GCC monetary unification


  • Marzovilla, Olga
  • Mele, Marco


In May 2007, Kuwait unilaterally abandoned the dollar peg, adopted in 2003 as a first step towards the monetary integration of GCC countries, to return to the previous basket peg system. The decision was motivated by the need to limit the inflationary pressures resulting from prolonged depreciation of the dollar against major currencies. Given the importance the anti-inflationary objective had in this choice, the work focuses on the peculiarities of Kuwait’s economy, justifying and reviewing the price dynamics in the light of re-pegging to the basket, in the belief that its composition has been affected by inflationary trends. To this end, an econometric model "Auto-Regressive Moving Average" is proposed to define the weights of currencies in the basket and the estimate shows that Euro’s has increased during the period, consistent with the goals against inflation. This is a particularly important to the future of the planned monetary union of the GCC countries, given the renewed commitment of Kuwait to be part of it, despite the existence of different exchange rate systems in force in other countries.

Suggested Citation

  • Marzovilla, Olga & Mele, Marco, 2010. "From dollar peg to basket peg:the experience of Kuwait in view of the GCC monetary unification," MPRA Paper 21605, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:21605

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    References listed on IDEAS

    1. Magda Kandil & Hanan Morsy, 2011. "Determinants Of Inflation In Gcc," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 141-158.
    2. Frankel, Jeffrey A. & Fajnzylber, Eduardo & Schmukler, Sergio L. & Serven, Luis, 2001. "Verifying exchange rate regimes," Journal of Development Economics, Elsevier, vol. 66(2), pages 351-386, December.
    3. Ronald I. McKinnon, 2002. "After the Crisis, the East Asian Dollar Standard Resurrected: An Interpretation of High-Frequency Exchange Rate Pegging," World Scientific Book Chapters,in: Monetary And Financial Management In Asia In The 21st Century, chapter 2, pages 21-77 World Scientific Publishing Co. Pte. Ltd..
    4. Hesham Alogeel & Maher Hasan, 2008. "Understanding the Inflationary Process in the GCC Region; The Case of Saudi Arabia and Kuwait," IMF Working Papers 08/193, International Monetary Fund.
    5. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters,in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3, pages 295-333 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Marzovilla, Olga, 2010. "Impact of global economic imbalance on migrant workers and economies of the Gulf Cooperation Council," MPRA Paper 24210, University Library of Munich, Germany.
    2. Jeffrey A. Frankel, 2017. "The Currency-Plus-Commodity Basket: A Proposal for Exchange Rates in Oil-exporting Countries to Accommodate Trade Shocks Automatically," Working Papers 1111, Economic Research Forum, revised 06 2017.
    3. Marzovilla, Olga, 2010. "The impact of global economic imbalance on migrant workers and economies of the Gulf Cooperation Council," MPRA Paper 29466, University Library of Munich, Germany.
    4. Marco Mele, 2014. "On China’s Exchange Rate Regime: Is Euro outside?," International Economics Letters, Transnational Press London, UK, vol. 3(2), pages 49-58, October.
    5. Abbas Al-Mejren, 2015. "Impacts of Fiscal Legal Setting and Institutions on Budget Outcomes in the Rentire State of Kuwait," Working Papers 920, Economic Research Forum, revised Jun 2015.

    More about this item


    GCC countries; exchange rate regimes; basket peg; dollar peg; inflation;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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