Historical Sketch

The island of Bahrain came under the rule of the Khalifa family around the year 1800, and their sovereignty got recognized in the 1820 maritime treaty between Great Britain and the local states of the Gulf Region. Through further treaties Bahrain gradually came under a British protectorate until 1892. Following a referendum in August 1971, the Emirate of Bahrain attained independence, and in 2002 the ruling emir proclaimed himself king.

Monetary History Overview

Already before the protectorate, the British Indian currency got introduced via foreign trade, and the Indian Rupee also remained current after Indian independence. In 1959, the Reserve Bank of Indian decided to issue distinct banknotes for use in the states on the Persian Gulf in order to have better control over the money supply. This created a special form of the Indian currency, the so-called Gulf Rupee which became current also in Bahrain. In June 1966, India devalued its currency. The Gulf states had not been consulted, so most of them were caught unprepared. Bahrain was the exception as in October 1965 already, a currency board had been established which replaced the Gulf Rupee by the Bahraini Dinar. It was pegged to the Pound Sterling, did therefore have no links to the Indian currency and remained unaffected by the devaluation. The Emirate of Abu Dhabi adopted the Bahraini Dinar to replace the Gulf Rupee, while other state of the region temporarily joined the Saudi Arabian monetary area. Bahrain's independence in 1971 did not change anything in the monetary policy. The Sterling peg remained until June 1972 when Great Britain floated its currency when it was replace by the US Dollar as anchor currency. In January 1978, the Dinar re-pegged to the IMF Special Drawing Right (SDR) unit but de facto returned to the US Dollar peg in August already by sufficiently widening the fluctuation margin against the SDR unit. In December 2001, the de facto Dollar peg was adopted officially.

Bahrain joined the International Monetary Fund (IMF) on 07.09.1972.

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