Saudi Riyal (SAR) - Currency of Saudi Arabia

As the official currency of Saudi Arabia, the Riyal has been in existence even before the formation of the country. The term Riyal is said to be derived from the Spanish word 'real.' The Saudi Currency is in the abbreviation of ر.س or SAR. The Saudi Riyal is further subdivided into 100 Halalas. The Saudi Arabian Monetary Authority, the second oldest Central Bank in the entire Arab World, monitors and prints the Saudi Riyal. The current worth of the Saudi Riyal is 1 USD=3.75 SAR. There are 5, 10, 25, 50 and 100 halala coins and 1, 5, 10, 20, 50, 100, and 500 riyal banknotes.

Some facts that you ought to know about the sar:

1. The short name for Saudi currency is SAR.
2. The most used coins are Halalas – 10 Halalas, 25 Halalas, 50 Halalas, 100 Halalas.
3. The most frequently used banknotes are 1 Rial, 5 Rials, 10 Rials, 20 Rials, 50 Rials, 100 Rials, 200 Rials, 500 Rials.
4. Saudi Arabian Monetary Authority is the central bank of this region.

History of Saudi Riyal

The Saudi Riyal is the official currency of the Kingdom of Saudi Arabia. The Riyal was first introduced in 1925 as a silver coin that replaced the Hejaz riyal, which had been the currency of the region for centuries. In 1935, Saudi Arabia began issuing paper banknotes for the first time.

Initially, the Saudi Riyal was pegged to the British pound at a rate of 1 Riyal to 4.8666 pounds. Nonetheless, the Riyal was linked to the US dollar in 1949 at a rate of 1 Riyal to 3.75 dollars, which is still in place today.

Throughout the 1950s and 1960s, the Saudi Riyal maintained its peg to the US dollar, with occasional fluctuations in response to economic and political events. In 1971, the United States ended the convertibility of the dollar to gold, leading to a decline in the value of the dollar and prompting Saudi Arabia to revalue the Riyal against the dollar to 1 Riyal to 3.55 dollars.

In the late 1970s and early 1980s, the global oil market experienced a boom, and Saudi Arabia saw a massive influx of oil revenue. This led to a period of economic growth and development, with the Saudi government investing heavily in infrastructure and social services. During this time, the Saudi Riyal remained stable, and the government maintained its peg to the US dollar.

In the 1990s, the Gulf War and other regional conflicts led to a decline in the global oil market and a period of economic instability for Saudi Arabia. In response, the government borrowed heavily and withdrew its foreign exchange reserves to maintain the Riyal's peg to the dollar.

In the early 2000s, rising oil prices led to a period of economic growth and stability for Saudi Arabia. The government continued to invest heavily in infrastructure and social services, and the Riyal remained stable. However, in 2008, the global financial crisis led to a decline in oil prices and a period of economic uncertainty. Once again, the Saudi government withdrew its foreign exchange reserves to maintain the Riyal's peg to the dollar.

Saudi Arabia has recently launched a number of economic changes meant to diversify its economy and reduce its reliance on oil revenues. These reforms include the introduction of new taxes and the privatisation of state-owned enterprises. However, the Riyal's peg to the dollar remains in effect, and the government continues to maintain a large foreign exchange reserve to support the Riyal's stability.

Factors Affecting Saudi Riyal

Here are some of the main factors that can influence the Riyal's exchange rate:

1. Oil Price:

Saudi Arabia is the world's largest oil exporter, and the country's economy is heavily dependent on oil revenue. Therefore, changes in global oil prices can have a significant impact on the Riyal's value. When oil prices rise, the Riyal tends to appreciate, while a decline in oil prices can lead to a depreciation of the Riyal.

2. Government policies:

The Saudi government plays a significant role in the country's economy, and its policies can impact the value of the Riyal. For example, the government's decision to invest in infrastructure and social services can lead to economic growth and increase the demand for Riyal. Conversely, policies that increase government spending or borrowing can lead to inflation and negatively impact the Riyal's value.

3. Inflation:

Inflation is the rate at which the general level of prices for goods and services is rising. High inflation can lead to a depreciation of the Riyal, as it reduces the purchasing power of the currency. In contrast, low inflation can make the Riyal more attractive to foreign investors and increase its value.

4. Political stability:

Political stability is an essential factor in determining Riyal's exchange rate. When there is political stability in Saudi Arabia, investors are more likely to invest in the country, which can increase the demand for Riyals and push up its value. In contrast, political instability can lead to a decline in Riyal's value, as investors become more risk-averse.

5. Interest rates:

Interest rates can also influence Riyal's exchange rate. When Saudi Arabia's central bank raises interest rates, it can make the Riyal more attractive to foreign investors, increasing its demand and pushing up its value. On the other hand, when interest rates are lowered, it can lead to a depreciation of the Riyal.

6. Global economic conditions:

Global economic conditions can also impact Riyal's value. Economic slowdowns in major economies such as the United States, Europe, and China can lead to a decrease in demand for Saudi oil and negatively impact the Riyal's value. On the other hand, a global economic boom can lead to an increase in demand for oil and boost Riyal's value.