What Is Kuwaiti Currency? KWD (Kuwaiti Dinar) Defined and History

What Is the KWD (Kuwaiti Dinar)?

The Kuwaiti Dinar (KWD) is the national currency of the State of Kuwait. The dinar name derives from the Roman denarius. The KWD subdivides into 1000 fils which is a coin used in many Arab countries.

Kuwait is a small nation located between Iraq and Saudi Arabia on the Persian Gulf. Its economy is heavily reliant on oil, making it one of the wealthiest nations in the world as measured by GDP per capita.

Understanding the KWD (Kuwaiti Dinar)

The introduction of the Kuwaiti dinar (KWD) in 1961 was a replacement for the Gulf rupee. The Gulf rupee was a currency pegged at parity to the Indian rupee. Issued in 1959 by the Indian government, the Gulf rupee was for use outside of India, particularly in the Persian Gulf region. Like the Indian rupee, the Gulf rupee was pegged to the British pound sterling (GBP).

In 1961, Kuwait gained independence from the United Kingdom with the end of treaties put in place after the defeat of the Ottoman Empire. Kuwaiti Currency Law created the Kuwaiti Currency Board, which later became the Central Bank of Kuwait, with the purpose of establishing a Kuwaiti currency. The Central Bank of Kuwait introduced the Kuwaiti dinar as a replacement for the Gulf rupee. Until 1966, both currencies circulated, but the use of the rupee ended after its devaluation.

Between 1975 and 2003, the Kuwaiti dinar was pegged to a weighted currency basket. The content of the currency basket was mandated by the Central Bank of Kuwait. In 2003, the KWD was pegged to the U.S. dollar (USD) at 0.29963 dinars to the dollar. This valuation continued until 2007 when it was formally re-pegged to an undisclosed basket of currencies.

As of December 2023, one Kuwaiti dinar is worth about USD 3.25, making it one of the most valuable currencies in the world.

The State of Kuwait has a petroleum product-based economy with 90% of government revenues coming from the oil industry. The State of Kuwait is a tax-free country, with one of the lowest unemployment rates in the world.

The Kuwait Investment Authority (KIA) is the oldest sovereign wealth fund in the world, and the investment industry of the country manages more assets than any other member of the Gulf Cooperative Council (GCC), a regional economic and political union.

Issuance of the KWD (Kuwaiti Dinar)

There have been six official issues of the Kuwaiti dinar banknotes since the first circulation in 1961. There have also been two commemorative sets circulated.

The third series, released in 1980 upon the crowning of Emir Jaber al-Ahmad al-Jaber al-Sabah, was in use until Iraq invaded Kuwait in 1990. Upon invasion, the Iraqi government installed the Iraqi dinar as the official currency for the area.

The invading Iraqi forces stole an enormous number of Kuwaiti dinar banknotes. With the liberation of Kuwait, the invalidation of the third dinar issue forced the replacement with the fourth issue of the currency in 1991.

The 1994 series implemented enhanced security features.

The sixth series came in 2014 with bills specially textured so blind and vision-impaired persons can identify them by touch.

KWD (Kuwaiti Dinar) Exchange Rate

Between December 2016 and December 2021, the Kuwaiti dinar fluctuated between $3.17 and $3.33. That means that it cost between $3.17 and $3.33 U.S. dollars to buy one Kuwaiti dinar. The higher rate, 3.33, means that the Kuwaiti dinar appreciated in value, or the U.S. dollar had fallen in value relative to the dinar. If the rate falls, that means that the Kuwaiti dinar is losing value, or that the U.S. dollar is gaining value relative to it.

Due to its relatively low volatility, and limited global trade, the Kuwaiti dinar is not typically used as a speculative trading instrument. If it were, a trader would attempt to buy near the lower end of its historical range, and try to sell near the top of it. Buying at $3.17 and selling at $3.33—the price range over five years—represents only a 5% profit, minus fees and commissions.

This is why most traders and investors stay away from trading this currency unless they feel a major fundamental shift may be forthcoming that could cause a major shift in the value of the currency.