Given the basket peg
in Kuwait and the low interest rate environment in advanced countries, monetary policy in Kuwait is rightly accommodative, and current liquidity conditions are supportive of emerging demand for credit.
However, since January 5, 2003, the previous weighted currency basket peg
was switched to a higher valuation of 0.
A move to a trade-weighted basket peg
, Ea la Kuwait, would perhaps better serve the UAE's economy.
The International Monetary Fund, the Washington-based lender with 185 member nations, has examined the costs and benefits of four exchange routines for a GCC currency: single currency US dollar peg, managed float, basket peg
and pegging to the export price of oil.
The main difference between a common basket peg
system and the AMU currency basket system is that the former pegs to external currencies or a mixture of external and internal currencies, such as the US dollar, euro, Japanese yen and RMB, while the latter pegs to the regional currencies.
Etsuro Shioji, Yokohama National University, "Invoicing Currency and file Optimal Basket Peg
for East Asia: A New Open Economy Macroeconomics Perspective"
dollar in the course of moving from a dollar peg to a currency basket peg
In others the link was looser because they used a basket peg
but still gave the dollar very substantial weight.
to remain accommodative, reflecting the basket peg
and low global interest
A basket peg
of major currencies could provide an intermediate exchange rate regime that introduces some flexibility in the exchange rate and reduces the adverse effects of swings in the value of major currencies," the IMF said in its latest report.
Step one would involve a simultaneous switch from a unitary peg to a basket peg
, a 15 to 25 per cent appreciation and wider margin of 5 to 7 per cent on either side around the new peg.
Like other geographically diversified countries, Iraq may thus be headed for a basket peg
, with equal weight on the dollar and euro.