Kuwait split raises questions over longevity of the dollar
By Jim Grant
Published: May 31 2007 03:00 | Last updated: May 31 2007 03:00
When the Roman emperor Constantine struck off a new gold coin, he expected it to give good, durable service. And the extra-durable solidus did - about 700 years' worth. Modern monetary systems have a somewhat shorter shelf life.
That the current monetary system may not last for the ages was underscored the other day by Kuwait's decision to uncouple its dinar from the US dollar. For years, the two had been lashed together as a preliminary to the projected creation of a common Persian Gulf currency.
But the more the dollar's value sagged, the more dollars the members of the Gulf Co-operation Council have had to absorb just to maintain the desired exchange rates. Naturally, the central banks of the participating countries did not acquire their dollars with nothing. They printed the local currencies with which to buy them and the more they printed, the more that inflation welled up. Now Kuwait has chosen to go its own way, leaving Saudi Arabia, Qatar, the United Arab Emirates and Bahrain to ponder their tolerance for open-ended dollar-buying. Little Kuwait just might be the herald of big change, both in the dollar's fortunes and the world's monetary organisation. To a degree, the world turns on open-ended dollar buying and the muscular feats of money-printing it calls forth.
www.ft.com/cms/s/f2f3a8a8...10621.html
By Jim Grant
Published: May 31 2007 03:00 | Last updated: May 31 2007 03:00
When the Roman emperor Constantine struck off a new gold coin, he expected it to give good, durable service. And the extra-durable solidus did - about 700 years' worth. Modern monetary systems have a somewhat shorter shelf life.
That the current monetary system may not last for the ages was underscored the other day by Kuwait's decision to uncouple its dinar from the US dollar. For years, the two had been lashed together as a preliminary to the projected creation of a common Persian Gulf currency.
But the more the dollar's value sagged, the more dollars the members of the Gulf Co-operation Council have had to absorb just to maintain the desired exchange rates. Naturally, the central banks of the participating countries did not acquire their dollars with nothing. They printed the local currencies with which to buy them and the more they printed, the more that inflation welled up. Now Kuwait has chosen to go its own way, leaving Saudi Arabia, Qatar, the United Arab Emirates and Bahrain to ponder their tolerance for open-ended dollar-buying. Little Kuwait just might be the herald of big change, both in the dollar's fortunes and the world's monetary organisation. To a degree, the world turns on open-ended dollar buying and the muscular feats of money-printing it calls forth.
www.ft.com/cms/s/f2f3a8a8...10621.html
