The Truth About the 1991 Kuwaiti Dinar RV

I took the opportunity to research the Kuwaiti Dinar (KWD) history both during and after the Iraqi invasion. It was not an easy task. I was surprised to uncover the truth about what really happened to the KWD and how it was not revalued as many people in Dinar Land believe.

The Technical Definition of a Currency Revaluation (RV)

A revaluation is a calculated upward adjustment to a country’s official exchange rate relative to a chosen baseline, such as wage rates, the price of gold, or a foreign currency.

In a fixed exchange rate regime, only a decision by a country’s government, such as its central bank, can alter the official value of the currency. Developing economies are
more likely to use a fixed-rate system in order to limit speculation and provide a stable system.

A floating rate is the opposite of a fixed rate. In a floating rate
environment, revaluation can occur on a regular basis, as seen by the
observable fluctuations in the foreign currency market and the
associated exchange rates.

For example, the U.S. had a fixed exchange rate to gold until 1971 when President Richard Nixon removed the United States from the gold standard and introduced a floating rate system. Furthermore, China’s currency had an internally fixed currency rate until 1995 when they revalued the Yuan, in a hybrid float/peg to the US Dollar in order to “maintain “manage” a low exchange rate to the Dollar to create low export prices of goods made in China.

Black Market Use of KWD

Certainly, the KWD was, and continues to be, the strongest currency in the world, trading at nearly $3.00 to 1 KWD before the Iraqi invasion in 1990. However, after the Iraqi forces invaded and occupied Kuwait, Saddam Hussein outlawed the use of the KWD in the country and declared the Iraqi dinar as the official currency of Kuwait. This meant that any Kuwaiti citizen caught using the KWD could be arrested.

Despite the ban on KWD, it continued to be available, albeit in a limited capacity, to Kuwaiti citizens via the local black market. They did not discard or destroy their KWD notes. The US dollar was also used locally as an intermediate trading currency, and this led to the KWD being sold on the black market for as low as $.05-$.10 per US dollar.

Consequently, United States military personnel, its allies, and private contractors were able to acquire “cheap”, pre-invasion KWD (Series 3 notes) locally during a brief transition period as they expelled Iraqi forces and assisted the reinstatement of the lawful Kuwaiti government.

Kuwait Issued a New Currency Note Series After Liberation from Iraq

After the expulsion of Iraqi forces, the Kuwaiti government released a new fourth series of KWD notes and allowed citizens to turn in their older KWD notes at a one-to-one value of the new KWD notes. This meant that anyone who held the previous KWD series notes, purchased at the black market rate, made a substantial profit when exchanging the old notes for the new ones, which they could then exchange for about $2.95 per KWD.

It is important to note that the KWD was never revalued (RV’d). The international exchange rate of the KWD was never below $2.90 during the crisis according to IMF exchange rate archives. There was no need for economic reforms, such as a currency RV, given that Kuwait has traditionally operated a very stable economy and was not economically sanctioned by international financial institutions or governments.

Misconceptions About the KWD “Revaluation”

It is surprising how the misconception of a Kuwaiti currency RV is so widely accepted. The truth is that Kuwaiti citizens, United States military personnel, its allies, and private contractors all made substantial profits by exchanging old, black market KWD Series 3 notes for new Series 4 notes. This fact is often overlooked when the financial impact of the Iraqi invasion on Kuwait is discussed.

The Gulf War did have an impact on the KWD exchange rate internationally. The Iraqi invasion led to the KWD’s depreciation to about $2.91 per KWD according to official archives by the International Monetary Fund. However, the KWD remained a relatively stable currency throughout the crisis and continued to be a valuable currency after the liberation of Kuwait.

The table below provides a summary of the KWD exchange rate from 1986 to 1995. It shows that at no point did any “Kuwaiti RV” or a substantial change in value or correction take place. The KWD did not fluctuate internationally in value by more than about 4% from Series 3 notes in pre-war 1989 to Series 5 notes in 1995.

Official IMF KWD Exchange Rates from 1989 to 1995:

Year	USD/KWD Exchange Rate
1989 (Series 3 notes in circulation)	$2.94
1990 (Iraqi invasion)	$2.91
1991 (Kuwait liberated and Series 4 notes issued)	$2.89
1992	$2.93
1993	$3.01
1994	$2.98
1995 (Series 5 notes issued)	$2.98

Conclusion

The data above shows that the KWD exchange rate did not fluctuate significantly during the Gulf War crisis. The international exchange rate of the KWD was never below $2.90 during the crisis. After the liberation of Kuwait, the Kuwaiti government released a new fourth series of KWD notes and allowed citizens and foreign personnel to exchange old KWD notes for new ones at a one-to-one value. The KWD remained a stable currency throughout the crisis and continued to be a valuable currency after the liberation of Kuwait.

My research into the Kuwaiti Dinar both during and after the Iraqi invasion revealed that it was never revalued as widely reported. Instead, the Kuwaiti government reissued its currency notes, allowing the old notes to be exchanged for the new notes at a one-to-one value locally. A very low, black market rate of KWD to US dollar, allowed many individuals to make substantial profits when exchanging the old, low priced notes for new notes at the prevailing high exchange rate.