Middle Eastern Currencies: History and Development
A history of Gulf currencies, the Jordanian dinar, and the Egyptian pound, and how they are quoted against the dollar in Iraqi exchange offices.
Introduction: Why Middle Eastern Currencies Matter in Iraq
Every day, many Iraqis deal with more than one currency: the Iraqi dinar for local transactions, the US dollar as a reference currency for savings and trade, and alongside them a range of Gulf currencies and other regional currencies that regularly appear at exchange offices in Baghdad, Erbil, Sulaymaniyah, and Basra. Whether it is a worker returning from a Gulf country, a trader importing goods through Jordan or Egypt, or a traveler planning an Umrah trip or tourism visit, understanding the background of these currencies and how they are priced against the dollar helps in making better financial decisions. This article offers a historical and practical overview of the six Gulf currencies, the Jordanian dinar1.410.00%, the Egyptian pound, and regional stability factors, with a focus on how Iraqi exchange offices actually handle these currencies.
The Six Gulf Currencies and Their Dollar Pegs
The six Gulf Cooperation Council states — Saudi Arabia, the UAE, Qatar, Kuwait, Bahrain, and Oman — share a broadly similar monetary philosophy, even if the details differ: nearly all of them peg their currency to the US dollar directly or near-directly, which has given them relative stability for decades despite swings in oil prices.
The Saudi Riyal (SAR)
The Saudi riyal has been officially pegged to the US dollar since 1986 at a fixed rate of roughly 3.75 riyals per dollar, one of the most stable monetary pegs in the region. The Kingdom relies on this peg to support confidence in oil trade and foreign investment. For Iraqis, the Saudi riyal against the Iraqi dinar is one of the most frequently quoted exchange rates at exchange offices, especially given the trade and religious travel between Iraq and Saudi Arabia (Umrah visits, land transport, and the expanding Arar border crossing).
The UAE Dirham (AED)
The UAE dirham has been pegged to the dollar since 1997 at a fixed rate of about 3.6725 dirhams per dollar. The UAE, and Dubai in particular, is a major commercial and financial hub for Iraqis, whether for shopping, money transfers, or as a trading transit point. This is why the UAE dirham in Iraq has a wide presence in currency markets, and it is often used as an intermediary currency in some commercial transfers between Iraq and other countries before being converted into dollars or Iraqi dinars.
The Qatari Riyal (QAR)
The Qatari riyal has been pegged to the dollar at around 3.64 riyals per dollar for decades. Qatar has gained growing economic importance thanks to liquefied natural gas revenues, and has become a work and study destination for a number of Iraqis, which keeps the Qatari riyal present — though to a lesser extent than the Saudi riyal and UAE dirham — at Iraqi exchange offices.
The Kuwaiti Dinar (KWD)
The Kuwaiti dinar has historically been one of the highest-valued currencies in the world against the dollar, priced at more than three dollars per dinar. Unlike most of its neighbors, the Kuwaiti dinar is not pegged solely to the dollar but to a basket of currencies, giving it more flexibility than other Gulf currencies, while remaining relatively stable thanks to Kuwait’s vast oil reserves and fiscal discipline. For Iraqis, the Kuwaiti dinar mainly appears in the context of labor, remittances, and trade relations through Mubarak port and the shared border area.
The Bahraini Dinar (BHD)
The Bahraini dinar2.65+0.67% is another high-value Gulf currency, pegged to the dollar at about 0.376 dinar per dollar since 1980. Bahrain has historically been a regional banking hub, and while its dinar is less prominent in day-to-day Iraqi trading compared to the Saudi riyal or UAE dirham, it still appears in banking transactions and private transfers.
The Omani Rial (OMR)
The Omani rial is among the highest-valued currencies globally, pegged to the dollar at about 0.385 rial per dollar since 1986. Oman is less dependent on oil than its Gulf neighbors and is working to diversify its economy through tourism and logistics, which could expose its rial to longer-term pressure if non-oil revenues decline, even though the dollar peg has held firm so far.
Why Do Gulf States Peg Their Currencies to the Dollar?
The dollar peg is not merely a technical choice but a deliberate economic strategy. The key reasons include:
- Oil revenues in dollars: Oil and gas are mostly sold internationally in US dollars, so pegging the local currency to it reduces exchange-rate risk on government revenue.
- Confidence and stability: A fixed peg gives foreign investors and local traders confidence that the currency’s value will not change suddenly.
- Facilitating international trade: Many trade and investment contracts in the Gulf are already denominated in dollars, so the peg removes conversion risk.
- Large reserves: These states hold substantial foreign currency reserves that allow them to defend the fixed rate for decades.
This model is, in principle, similar to Iraq’s own monetary policy, where the Central Bank of Iraq maintains a near-fixed official exchange rate for the dinar against the dollar (1,310 dinars per dollar since February 2023), alongside a parallel market rate that moves more freely and is influenced by supply, demand, confidence, and speculation.
How tight is a peg, really?
A peg is a promise, and promises can be tested. DinarView has a daily reading of every currency below going back to August 2016. Measuring how far each one strayed from its own ten-year average turns the promise into a number.
The dirham is the tightest peg in the region and one of the tightest in the world: over ten years its daily rate varied by 0.01 per cent around its own average, which is close to the limit of what is measurable. The riyal, the Jordanian dinar, the Omani rial and the Bahraini dinar all sit under 0.15 per cent. The Qatari riyal, at 0.41 per cent, carries the mark of the 2017 blockade, when its offshore rate briefly detached from the official one. The Kuwaiti dinar is the loosest at 0.89 per cent — and deliberately so, because Kuwait alone pegs to a basket of currencies rather than to the dollar, so the dollar rate is allowed to drift as the basket moves.
The Jordanian Dinar: A Stable Currency Next Door
The Jordanian dinar (JOD) is historically one of the most stable Arab currencies, pegged to the US dollar since the mid-1990s at a fixed rate of about 0.709 Jordanian dinar per dollar. Jordan is not a major oil producer, but it has maintained this peg through conservative monetary policy and regional and international financial support when needed. For Iraq, the Jordanian dinar holds special significance: Amman has long been a key commercial and logistical hub for Iraqis, especially during the sanctions years of the 1990s, when Jordanian land routes were an essential import artery — a role that continued in part through the Turaibil border crossing. As a result, the Jordanian dinar still appears at some Iraqi exchange offices, albeit in smaller volumes than the Gulf currencies.
The Egyptian Pound: From Fixed Rate to Floatation
The Egyptian pound (EGP) tells a very different story compared to Gulf currencies. Rather than a long-term fixed peg, the pound has gone through several phases of government-controlled exchange rates, followed by waves of partial and full floatation, most notably the major devaluation Egypt experienced in recent years under pressure from balance-of-payments crises and hard-currency shortages. As a result, the Egyptian pound lost a significant portion of its value against the dollar over a relatively short period, an example that shows Iraqis how the fate of a managed-float currency can differ from one strictly pegged to the dollar like the Gulf currencies. Egypt nonetheless remains an important economic, tourism, and demographic partner for Iraq, and Egyptian pound transfers mainly appear in the context of Egyptian labor in Iraq and reverse remittances from Iraqi workers in Egypt, as well as tourism and education.
Regional Currency Stability Factors
The main factors that determine whether a regional currency stays stable or fluctuates can be summarized as follows:
- Dependence on oil and gas: Countries with substantial oil revenues (Saudi Arabia, the UAE, Kuwait, Qatar) have greater flexibility to defend their currency pegs.
- Size of foreign reserves: Large foreign currency reserves mean greater ability to withstand speculative attacks or dollar liquidity shortages.
- Political and security stability: Instability (wars, sanctions, internal unrest) directly pressures market confidence in the local currency, as Iraq itself has experienced in different periods.
- Balance of payments and external debt: Countries that import more than they export, or carry high external debt (as was the case with Egypt), have currencies more exposed to pressure.
- Central bank monetary policy: A central bank’s ability to manage liquidity, interest rates, and the foreign currency sale window (such as the Central Bank of Iraq’s currency window) directly affects the stability of both the official and parallel exchange rates.
These same factors help explain why the Iraqi dinar’s parallel market rate remains higher than the official rate, as confidence and demand for dollars for travel, imports, and savings all interact within it.
Put the pegged currencies beside the floating ones and the region divides cleanly in two.
| Currency | Units per $1 | Dinars per unit, 2026 | Ten-year variation | Regime |
|---|---|---|---|---|
| UAE dirham | 3.673 | 416 | 0.01% | Dollar peg |
| Saudi riyal | 3.753 | 407 | 0.09% | Dollar peg |
| Qatari riyal | 3.644 | 420 | 0.41% | Dollar peg |
| Bahraini dinar | 0.3771 | 4,054 | 0.12% | Dollar peg |
| Omani rial | 0.3845 | 3,976 | 0.08% | Dollar peg |
| Kuwaiti dinar | 0.3083 | 4,959 | 0.89% | Basket peg |
| Jordanian dinar | 0.709 | 2,156 | 0.07% | Dollar peg |
| Egyptian pound | 50.45 | 30 | 52.24% | Floating |
| Turkish lira | 45.41 | 34 | 82.41% | Floating |
| Iranian toman | 1.703e+05 | 0 | 102.86% | Floating |
Rates are DinarView daily readings; the dinar column is the 2026 average of the cross to date. Variation is the standard deviation of the daily rate as a percentage of its own average since August 2016. The toman figure is the Iranian free market, not the official rial rate.
Seven currencies moved by less than one per cent over a decade. Three moved by more than half their own value: the Egyptian pound at 52 per cent, the Turkish lira at 82 per cent and the Iranian toman at 103 per cent. Iraq sits between the two groups. The dinar is pegged in the official channel, and there it has been as stable as any dirham; but the market rate the public actually pays is not pegged, and it is the difference between those two facts that gives Iraq the exchange-office culture the Gulf states no longer have.
How Middle Eastern Currencies Are Quoted at Iraqi Exchange Offices
In practice, these currencies are rarely priced directly against the Iraqi dinar on published rate boards. It is far more common for exchange offices to price them against the US dollar first, and then have the customer or dealer calculate the Iraqi dinar equivalent by multiplying or dividing by the prevailing dollar exchange rate in the local market at that moment. In other words, the US dollar functions as a reference or “bridge” currency between the Iraqi dinar and other regional currencies. This dollar-centric approach means that tracking Gulf currencies, the Jordanian dinar, or the Egyptian pound accurately requires a dual check: the currency’s rate against the dollar globally, and the dollar’s rate against the Iraqi dinar in the local market at the same time — data that platforms like DinarView provide for people tracking exchange rates in Iraq.
Frequently Asked Questions
Are all Gulf currencies pegged to the dollar at the same rate?
No, each Gulf state sets its own peg rate, which differs from the others (for example, the Saudi riyal at around 3.75 versus the UAE dirham at around 3.6725 per dollar), but the general principle — a fixed or near-fixed peg to the dollar — is shared by most of them, with the exception of Kuwait, which is pegged to a basket of currencies.
Why is it preferable to convert Gulf currencies via the dollar in Iraq?
Because the dollar is the most liquid and widely traded currency in the Iraqi market, and most exchange offices rely on it as a unified pricing intermediary, which makes it easier to compare and convert between multiple currencies without needing a separate rate table for every currency pair.
What is the difference between the Gulf’s fixed peg and Egypt’s floatation?
A fixed peg (as in Saudi Arabia and the UAE) means the government sets a near-permanent official exchange rate backed by large reserves, while floatation — as happened with the Egyptian pound — lets the market determine the currency’s value in response to supply and demand, which often leads to greater volatility and possibly sharp declines in value when economic pressures arise.
Are these currencies’ rates in Iraq affected by the official or parallel dollar rate?
It depends on the context of the transaction; official bank transfers and formal remittances are usually calculated closer to the official rate, while day-to-day cash dealings at exchange offices and markets often reflect the parallel-market dollar rate, which makes tracking the gap between the two rates important for anyone converting foreign currency inside Iraq.
Conclusion
Understanding the background of the six Gulf currencies, the Jordanian dinar, and the Egyptian pound, and their historical relationship with the US dollar, gives Iraqis — whether travelers, traders, or people receiving family remittances — a clearer framework for understanding price movements at local exchange offices. While most of these currencies are effectively measured through the dollar as a reference currency, knowing their historical foundations and the reasons behind their stability or volatility helps in making more informed financial and currency-exchange decisions, especially in an environment where the Iraqi dinar’s own exchange rate remains something citizens and traders track on a daily basis. This content is general information, not investment or financial advice.
Sources
- Central Bank of Iraq — official exchange rates
- BIS Triennial Central Bank Survey 2025 — OTC foreign exchange turnover
- IMF — Currency Composition of Official Foreign Exchange Reserves (COFER)
- World Bank — Iraq country data
- DinarView — live rate board
Rate figures marked DinarView are computed from this site’s own daily record. Everything else links to the publishing institution.
