Professional Documents
Culture Documents
Presented By-
Kapil Chand
Parikshit Chaudhuri
Rohtashva Gupta
Dhruv Chochar
Introduction to Saudi Arabia
Arab state in Western Asia constituting the bulk of Arabian Peninsula
Geographically the fifth largest state in Asia and second largest in
Arab world after Algeria
Petroleum was discovered in Saudi Arabia on 3rd March 1938
Saudi Arabia has since become the worlds largest oil producer and
exporter , controlling the worlds second largest oil reserves and sixth
largest gas reserves
Saudi Arabias currency is called Saudi Riyal which is currently
pegged to USD at a rate of 1USD = 3.75 SR
Saudi Riyal
The word Riyal comes from Spanish word Real
Earlier the official currency was called Maria Theresa Thaler when Saudi Arabia
was known as The Kingdom of Hejaz
The modern currency has been originated from Spain while MTT had its origin
from Austria
Original value of Saudi Riyal was tied to Ottoman Kurus used as the term
Ghirish
In 1927 official coins were introduced for .25, .50, 1 Saudi Riyal
Currently 1 Riyal is the minimum value of currency for transactions
Saudi Arabian Monetary Authority serves as the central bank for Saudi
Arabia
It monitors , prints and issues currency for transaction purposes
SAMA is the second oldest central bank in Arab world
In 1953, the first bank notes were introduced by SAMA with highest currency
note of 10 Riyal
Pilgrim receipts were currency replacement instrument which were
introduced in order to meet transaction need of Haj pilgrims
Pilgrim receipts officially phased out in 1964 while replacing it by banknotes
Finally in 2003, Saudi Riyal was officially pegged to USD at 1 USD = 3.75 SR
Market Speculation:-
The liquidity problem of Saudi Arabia could be understood from the following indicators:
Deposits with Saudi Central Bank decreased by 1.5% ( SAR 1.4 Billion) to SAR 97 billion in
Q2 2016, compared to a decrease of 4.2% ( SAR 4.4 billion) in the preceding quarter. They
recorded an annual decrease of 9.7% ( SAR 10.5 billion) at the end of Q2 2016.
Banks total reserve assets decreased by 2.9 percent ( SAR 63.8 billion) to SAR 2,137.7
billion in Q2 2016, compared to a decrease of 4.8 percent (SAR 110.0 billion). They recorded
an annual decline of 15.6 percent ( SAR 395.4 billion) at the end of Q2 2016.
Three-month interbank offered rates in Riyadh have suddenly begun to spiral upwards,
reaching the highest since the Lehman crisis in 2008.
Liquidity problem conitnued
Saudi Arabias foreign exchange reserves still provide an ample buffer, but they have been
falling fast . If Brent crude oil prices drop to $30, the foreign exchange reserve drain could
accelerate to $18bn per month.
Non-oil Private Sector Business Climate Indicators are negative : (i) Emirates NBD PMI
Composite , (ii) Emirates NBD PMI Output, (iii) Purchasing Manager Index New Orders and
(iv) Purchasing Manager Index Output Prices are all down.
Consumer and wholesale inflation rate sharply increased.
Real estate market transactions are down.
Avoiding Riyal Devaluation
Saudi Arabia one of the GCC countries that keep their exchange rate pegged to dollar
Saud Arabia has held the riyal at a fixed exchange rate and that has brought stability
to government finances
90% of the revenue comes from oil, priced in dollars
Ceasing the peg would make dollars stretch further on conversion, without peg
system riyal will be a weak currency
To prop-up the currency, the kingdom is buying riyal with dollar reserves accrued
during years of high oil prices
Reserves fell to $635.2 billion at the end of November 2015, down 15% from a peak
of $746 billion in August 2015, it may decline far greater than the 2% devaluation
Saudi may keep spending dollars to avoid devaluation, which would be uncomfortable
for long-term consequences
Continued
Households and businesses have debt in foreign currencies, and payments costs
would rise if local currency falls
Rise in price on imports
Devaluation would mean more riyal flow per barrel of oil which would reduce budget
deficit
Two oil-rich nations abandoned their dollar pegs, Azerbaijan scrapped its peg to
greenback in December and lost half of their currencies value
Kazakhstan, let their currency float freely in august and observe lose more than a
quarter of its value in a day
When economic fundamentals change then pegs break