Riyal Dollar Peg

Published: 2021-07-09 16:45:06
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Category: Saudi Arabia

Type of paper: Essay

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The currency of the Kingdom of Saudi Arabia is Saudi Riyal. It has been officially pegged to the U.S. Dollar at 3.75 Riyal per USD1 since 2003 or nearly eleven years now (OANDA). As Saudi Central Bank Governor Muhammad Al-Jasser explained, being pegged to the USD supports the kingdom’s primarily oil-based economy. Even though some suggest that the revaluation of Saudi Riyal will better serve the kingdom’s interests by giving boost to its exports.
Al-Jasser reminds such critics that Saudi economy is primarily dependent upon oil and gas and the lack of diverse composition of Saudi economy means currency revaluation doesn’t matter to Saudi Arabia. Al-Jasser also believes that revaluation would result in appreciation of Saudi Riyal as implied by his comments that cheaper imports would only create inflation problem due to higher domestic demand. This is due to the fact that Saudi Arabia imports most of the food items consumed domestically (Waki, 2011).
Another benefit of Saudi Royal being pegged to US Dollar is that it creates stability and predictability because unlike some other currencies, Dollar is less volatile (Hanware, 2013). The peg also helps protect values of Saudi Arab’s foreign assets. A revaluation of Saudi currency will shave off significant value from Saudi Arab’s hundreds of billions dollars worth of foreign assets if not more (Hanware, ‘This Is Not the Time to Change Riyal’s Peg to the Dollar’, 2007). This makes things easier for the government such as planning and budgeting. But at the same time, Saudi Arab is doing more business with other countries such as those in Asia and as a result, some experts believe a certain degree of revaluation is necessary to reflect the new reality on the ground (Hanware, 2013).

References
Hanware, K. (2007, August 27). ‘This Is Not the Time to Change Riyal’s Peg to the Dollar’. Retrieved April 12, 2014, from http://www.arabnews.com/node/302625
Hanware, K. (2013, May 25). Riyal-dollar peg ‘serves interests of Kingdom’. Retrieved April 12, 2014, from http://www.arabnews.com/news/452821
OANDA. (n.d.). Saudi Riyal. Retrieved April 12, 2014, from http://www.oanda.com/currency/iso-currency-codes/SAR
Waki, N. (2011, February 16). Dollar peg serves Saudi Arabia well – c.bank governor. Retrieved April 12, 2014, from http://www.reuters.com/article/2011/02/16/saudi-economy-idAFLDE71F2KY20110216

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