FROM DOLLAR PEG TO BASKET PEG: THE EXPERIENCE OF KUWAIT IN VIEW OF THE GCC MONETARY UNIFICATION

In May 2007, Kuwait unilaterally dropped the dollar peg, which had been 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 curb inflationary pressures arising from prolonged depreciation of the dollar against major currencies. Given the relevance of the anti-inflationary objective in this choice, this work will focus on the peculiarities of Kuwait's economy in order to justify it and review the dynamics of prices in the light of re-pegging to a basket, believing that its composition was affected by inflationary trends. To this end, an "Auto-Regressive Moving Average" econometric model is proposed to define the weights of currencies in the basket and the estimation shows that the influence of the Euro has increased during the last period, consistent with the goals against inflation. This is of particular importance 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.