Currency Exchange in the Saudi Financial Market: Concepts and Opportunities

The currency exchange market, commonly known as Forex, is a decentralized global market where currency exchanges occur between various parties to meet the needs of trade, investment, and travel. In the Kingdom of Saudi Arabia, currency exchange has a unique character due to the Saudi Riyal's peg to the US dollar and the precise regulation governing exchange activities. Officially, foreign currency trading is limited to licensed banks and exchange companies, as there is no independent currency exchange market as seen in some global markets. Citizens and residents in Saudi Arabia focus on the exchange rate of the Riyal against major currencies such as the US dollar, Euro, and Japanese Yen, with this rate determined by the policies of the Saudi Central Bank (SAMA), which ensures the stability of the local currency through the management of foreign currency reserves. Both local and global demand for the Riyal, along with factors such as oil prices, influence market movement, but volatility remains relatively limited due to the Kingdom's conservative monetary policy.

The exchange rates of the Saudi Riyal against foreign currencies are determined through a mix of market mechanisms and central bank policies. The Riyal is pegged to the US dollar at a fixed exchange rate, meaning that the Saudi Arabian Monetary Authority is committed to providing dollars at this rate to any party wishing to convert, whether from companies or individuals. This peg achieves significant stability in the exchange market, reduces risks associated with currency fluctuations, and helps companies and investors plan financially with greater confidence. For other currencies such as the Euro or British Pound, the exchange rate of the Riyal against these currencies is calculated based on the dollar's rate against those currencies in international markets, with a small profit margin added by banks and exchange companies. This system provides citizens and residents with the ability to convert currency easily and transparently, but it limits opportunities for speculation or benefiting from large market fluctuations.

The Saudi Arabian Monetary Authority (SAMA) and the Capital Market Authority play a central role in regulating and monitoring the currency exchange sector. SAMA issues licenses to exchange companies, sets capital requirements, and monitors compliance with anti-money laundering and terrorism financing procedures. The authority also ensures that banks and exchange companies maintain sufficient cash reserves to meet any sudden demands or crises. Meanwhile, the Capital Market Authority regulates the trading of securities, including shares of listed exchange companies, and imposes disclosure and transparency rules to protect investors. Regulatory authorities closely monitor the flow of financial transfers and impose precise reporting requirements on companies, with ongoing updates to legislation to keep pace with technological and economic developments on both local and global fronts.

The stability of the Saudi Riyal is one of the most important features of the national economy, primarily relying on the currency's peg to the US dollar and the vast foreign reserves held by the Kingdom. For decades, Saudi Arabia has maintained a fixed exchange rate for the Riyal against the dollar (3.75 SAR/USD), instilling high confidence in the Kingdom's ability to meet its international obligations. This stability enhances the investment climate and reduces currency exchange risks for international trade. On the other hand, the strength of the Riyal depends on factors such as oil prices, which represent the primary source of national income, and the flow of financial transfers from foreign workers. Additionally, the cautious financial policy of SAMA and the presence of a strong and developed banking system contribute to supporting the local currency's stability against external shocks and economic fluctuations.

Data released for 2024 and 2025 indicates continued stability of the Saudi Riyal's exchange rate against the US dollar at 3.75 SAR/USD, supported by foreign reserves exceeding $430 billion. The Saudi trade balance showed a significant surplus during the second half of 2024, with a notable increase in oil revenues and financial transfers from foreign workers. Additionally, the activity of exchange companies rose by an estimated 5-10% compared to the previous year, due to growth in the tourism and financial transfer sectors. At the same time, the Kingdom maintained its strict policies regarding exchange regulation, granting additional licenses to exchange companies to enhance competitiveness and respond to increasing demand. These figures reflect the strength of the Saudi economy and its ability to face regional and international challenges while maintaining exchange rate stability and boosting confidence in the national currency.

Al-Nakhdh Exchange is a prominent example of companies operating in the currency exchange sector, being the first exchange company to be listed on the Saudi stock market at the end of 2023. The company provides diverse currency exchange and transfer services for individuals and businesses, benefiting from the expansion of its branch network and the adoption of modern technologies in delivering financial services. Financial data for 2024 showed a revenue growth exceeding 15% year-on-year, with net profits rising by about 10%. The company adopted a profit reinvestment policy to enhance its expansion, which reflected on a relatively low cash dividend yield. The company benefits from the increasing demand for financial transfers, especially from expatriates, alongside support from strategic alliances with local and international banks. Its financial performance and sustainable growth are positive indicators of the vitality of the exchange sector in the Kingdom.

The financial indicators for Al-Nakhdh Exchange reflect the robustness of its performance in a competitive sector. The stock price at the end of 2024 was approximately 55 SAR, with a market capitalization nearing 5.5 billion SAR, while the price-to-earnings (P/E) ratio was around 18, reflecting market confidence in the company's future earnings. The cash dividend yield was below 1%, due to the company's focus on reinvesting profits for expansion and developing digital services. In terms of revenue, the company experienced a compound growth rate of 12% between 2023 and 2024, with an increase in net profit margin. The results for the fourth quarter of 2024 showed an annual revenue growth exceeding 15% and an increase in net profits by about 10%. These figures reflect the company's success in capitalizing on the growth of the financial transfer sector and expanding its customer base.

The currency exchange sector falls within financial services, and its performance depends on demand for transfers, central bank policies, and global economic conditions. The sector offers growth opportunities with increasing financial transfers from expatriates, growing tourism, and expanding branch networks. Conversely, it faces challenges such as competition from major banks and global transfer companies, regulatory changes, and technological shifts that require ongoing investments in digitization and cybersecurity. Additionally, fluctuations in oil prices and global economic crises may impact the volume of transfers and foreign currency movement. Nevertheless, Vision 2030 and the expansion of non-oil sectors provide significant growth opportunities for the exchange sector, especially with the increase in international trade and foreign direct investment.

The Saudi market hosts a large number of competitors in the currency exchange sector, including local exchange companies such as Abu Hamad Exchange and Al-Marzouqi Exchange, as well as major banks like Alinma Bank, National Commercial Bank, and Riyad Bank. Additionally, global money transfer companies like Western Union and MoneyGram operate through agencies and banking partnerships in the Kingdom. Fintech companies have also begun entering the market through money transfer applications, targeting the youth segment and fast transfers. Competition in the sector depends on factors such as geographic presence, service quality, competitive pricing, and adaptation to technological developments. Licensed exchange companies are required to maintain compliance and transparency standards to ensure their continued presence in the market.

The exchange sector in Saudi Arabia has witnessed significant regulatory and technological developments during 2024-2025. The Capital Market Authority issued new instructions to tighten oversight on exchange companies' flows and enhance their resilience to liquidity risks. SAMA also worked on updating financial reporting procedures for companies and enhancing transparency and regulatory compliance. Technologically, digital platforms and smart applications have been launched, allowing consumers to compare exchange rates and transfer money electronically with ease and speed. These developments are part of the Kingdom's financial digitization strategy aimed at improving the efficiency of the financial sector and enhancing customer experience, with a focus on information security and combating financial crimes.

With the growing global interest in digital currencies and modern financial technologies, regulatory authorities in Saudi Arabia, such as SAMA and the Capital Market Authority, are cautiously monitoring developments in the digital currency market. So far, trading in cryptocurrencies is not officially permitted outside licensed channels, and any new experiments or products are subject to strict oversight. Conversely, stablecoins and blockchain-based technologies are expected to play an increasing role in the financial transfer sector in the future, especially as companies seek to reduce costs and expedite cross-border transactions. Some entities are also studying the issuance of an official central bank digital currency. These transformations are contingent upon the development of legislation and alignment with international standards for security and transparency.

The currency exchange sector in Saudi Arabia is moving towards further digitization and integration with the banking sector, in line with Vision 2030, which focuses on developing non-oil sectors and increasing the attractiveness of the economy for foreign investment and tourism. Exchange companies are expected to see further expansion in electronic services, focusing on improving customer experience and providing innovative solutions for international transfers. Increased collaboration between exchange companies and banks to offer joint financial products and expand the customer base is also anticipated. Furthermore, developing human capital and investing in modern technologies are critical factors for the success of companies in the future, as regulatory authorities continue to update legislation to keep pace with rapid changes in global markets.