Kuwait is a small country located between Iraq and Saudi Arabia on the Persian Gulf. Its economy is primarily dependent on oil which makes it one of the wealthiest nations in the world in terms of GDP per capita.
The Kuwaiti Dinar (KWD) is the national currency of the State of Kuwait. The dinar term was derived from the Roman denarius. The KWD subdivides into 1000 fils, a coin used in many Arab countries.
What are the reasons behind the high value of KWD?
Let’s understand the reasons behind the highly valuable KWD.
1. Major Exporter of Oil
There is no denial, and it is a known fact that Kuwait is the major exporter of Oil in the world. It is estimated that Kuwait has crude oil reserves of 104 billion barrels (15 km³), which account for 10% of the world’s reserves. They have enough petrol to account for over half of Kuwait’s GDP, 94% of its export revenues and 90% of the government income.
2. Profitable Oil Revenue
The management of the marketing and distribution of oil in Kuwait is balanced and reasonable. Unlike Nigeria and some African countries, oil sales are a disaster due to the mismanagement by politicians and public officials.
The organized management of the oil in Kuwait helps the country to skyrocket its sales of oil in their nation. The nation’s oil revenue contributes to its economy. It is one of the main reasons for KWD being the highest valued currency in the world.
3. A Tax-free Country
Kuwait’s oil industry accounts for 75% of government revenue: petroleum and petrochemicals account for 43% of GDP and 90% of export revenues, while main imports remain necessities like food products and textiles.
Being amongst the largest oil producers in the world, the government of Kuwait subsidizes the cost of essential food items, petrol, electricity as well as the healthcare system. Hence, it offers zero tax on income earned by individuals. It is a contributory factor to the high valuation of KWD.
4. Pegging Exchange Rate at a high level
By now, we have figured out that Kuwait is one of the largest oil exporters in the world. The revenue from its exports is much higher than the country’s imports for its citizens’ basic needs. In 2011, estimated exports stood at US$94.47 billion, and imports were around US$22.41 billion.
It enables Kuwait to peg its exchange rate at a high level as it can earn them more income. It is an apparent reason why their currency is valued at the highest.
5. Kuwait is a Rich Country
Kuwait is a country full of wealth generated from solely the petroleum-based economy. It has acquired a leading position in the GCC country’s financial sector. The above-combined industries have led Kuwait’s dinar to become the world’s top valued currency.
Kuwait also has a tiny population, which means that their capita per person equates to being very high. Hence, it is among the wealthiest countries, and its currency is highly valued.