May 23, 2007

KUWAIT CITY - Although oil-rich Kuwait has abandoned pegging its currency to the U.S. dollar, the greenback will still make up a major part of the basket of currencies that will fix the dinar's exchange rate, the Central Bank governor said Tuesday.

The state-owned Kuwait News Agency quoted the governor, Sheik Salem Abdul-Aziz Al Sabah, as saying the currencies included in the basket will represent foreign nations that trade most with Kuwait, and said the U.S. dollar will continue to figure prominently among them.

The percentage of each of these currencies will remain "confidential," he said.

The Central Bank governor announced Sunday a decision to return to the pre-2003 policy of linking the dinar to a basket of currencies, saying pegging it to the falling dollar for more than four years had "contributed to local inflation."

Inflation peaked in 2005 at 4.1 percent, and reached 3.1 percent in 2006, KUNA quoted Sheik Salem as saying. Historically, it had hovered below 2 percent, he said.

Kuwait has been a major ally of Washington since the U.S.-led 1991 Gulf War that liberated it from a seven-month Iraqi occupation.

It's 2003 switch was to comply with requirements from a plan for a unified Gulf currency by the year 2010. The Central Bank governor reiterated his country's commitment to the Gulf Cooperation Council monetary union plan, saying Kuwait will coordinate with its fellow GCC members when preparations for the new currency are in place.

Along with Kuwait, the loose economic and political alliance groups Saudi Arabia, the United Arab Emirates, Qatar, Bahrain and Oman.

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