KUWAIT CITY, 21 May 2007 — Kuwait has abandoned pegging its currency to the US dollar and returned to linking it to a basket of currencies, the Central Bank governor announced yesterday.

The fall of the exchange rate of the US dollar has “contributed to local inflation,” and the Cabinet decided yesterday to peg the Kuwaiti dinar to a basket of currencies instead, the Kuwait News Agency quoted the bank governor, Sheikh Salem Abdul Aziz Al-Sabah, as saying.

The falling US dollar has had “negative effects” on the Kuwaiti economy for the last two years, Sheikh Salem told the state-owned agency.

He told KUNA the move was “necessary in national interest,” but that the US dollar would continue to be part of the foreign currencies that determine the exchange rate of the Kuwaiti dinar.

Sheikh Salem said the new basket of currencies would reflect Kuwait’s commercial and financial ties, but did not provide further details about which country would be included.

Kuwait’s Central Bank had switched from a basket of currencies to the greenback in 2003 to comply with requirements of a plan for a unified Gulf currency by the year 2010.

The six members of the Gulf Cooperation Council (GCC) hope the move, similar to the creation of the euro by the European Union, will boost regional trade and economic integration.

Despite the central bank’s decision, Kuwait remains “fully committed” to the unified Gulf currency by its target date of 2010, Sheikh Salem said.

Along with Kuwait, GCC groups Saudi Arabia, the United Arab Emirates, Qatar, Bahrain and Oman.