Money in the Saudi Financial Market: Concept, Importance, and Modern Liquidity

The term "money" in the Saudi financial market refers to the cash liquidity available for trading and investment within the national economy. This includes Saudi riyals and foreign currencies that are traded through banks and financial markets. In the local context, money is viewed as a fundamental element in financing companies, enabling individuals to purchase assets, and stimulating investment activity. Money is also represented in companies' financial statements under cash and cash equivalents, which are important indicators of the financial robustness of institutions.

The Saudi Central Bank (SAMA) controls the amount of money available in the market through monetary policies such as setting interest rates and the level of banks' required reserves. The Capital Market Authority plays a regulatory role in ensuring the orderly and transparent flow of liquidity between investors and listed companies. An increase in liquidity typically means a rise in buying and selling activities in the market, which reflects on asset prices and trading volumes, while a shortage of money leads to weakened economic and commercial activity.

Therefore, understanding the concept of money in the Saudi financial market is closely linked to macroeconomic variables, state policies, and the performance of the financial and banking sector.

Money plays a pivotal role in the Saudi financial market through its core functions: a medium of exchange, a store of value, and a unit of account. In the stock and bond markets, liquidity provides easy entry and exit opportunities for investors without significantly impacting prices, known as "market depth".

A surplus of liquidity often leads to increased investments in stocks and funds, while a decline in liquidity can limit trading activity and affect asset valuations. Additionally, the movement of money between banks and the financial market reflects confidence in the economy and determines short- and long-term investment trends.

Moreover, money contributes to financing government and private projects, supporting development programs such as Saudi Vision 2030, and providing the necessary capital for innovation and economic growth. Liquidity is one of the key indicators monitored by investors and decision-makers to assess market health and sustainable growth.

Liquidity, or the availability of money that can be instantly converted, is the most important indicator of the health of the Saudi financial market. The higher the liquidity, the greater the ability of investors and institutions to execute buying and selling operations quickly and without significant losses.

Liquidity is measured in various ways in the financial market, most notably through daily trading volume, the value of cash in banks, and the level of foreign reserves at the central bank. For example, the trading volume on Tadawul during the first quarter of 2024 exceeded 500 billion riyals, reflecting significant activity in the movement of money among investors.

High liquidity in the market enhances confidence levels and attracts additional local and international investments, while low liquidity may indicate increased risks and difficulties for investors to exit their positions. Therefore, financial and monetary policies in the Kingdom focus on maintaining a balanced level of liquidity that ensures stability and stimulates growth.

The amount of money and liquidity in the Saudi economy is influenced by several key factors:

1. Oil Prices: As the Kingdom is one of the largest oil producers in the world, rising oil prices increase government revenues, enhancing liquidity in the local market. Conversely, falling prices reduce financial surpluses.

2. Monetary Policies of the Saudi Central Bank (SAMA): By controlling interest rates and required reserves, SAMA determines the amount of money available in the financial system.

3. Government Spending: Increased spending on development and infrastructure projects leads to additional liquidity being injected into the economy.

4. Movement of Foreign and Domestic Investments: New capital inflows enhance the amount of money available for trading and investment.

5. Global Indicators: Changes in global financial markets, such as U.S. interest rate hikes, directly affect local liquidity policies.

These factors interact to determine the abundance or scarcity of money in the Saudi financial market, reflecting their results on economic growth and financial stability.

The Saudi Central Bank (SAMA) and the Capital Market Authority are the central entities for regulating the flow of money in the Saudi market. SAMA is responsible for setting monetary policies that ensure the stability of the national currency and maintain liquidity balance through tools such as interest rates, repurchase agreements (repos), and cash reserves.

On the other hand, the Capital Market Authority works to develop the regulatory framework for the financial market and implement transparency and disclosure standards for listed companies, contributing to enhancing confidence and ensuring the organized flow of liquidity. The Authority also supervises brokerage firms, investment funds, and monitors their compliance with anti-money laundering regulations.

The cooperation between SAMA and the Capital Market Authority aims to achieve liquidity sustainability, prevent sharp fluctuations, and protect investors from risks associated with money volatility or poor liquidity management in the market.

Money forms the essential capital for any investment in the stock market or investment funds. Investors strive to have sufficient liquidity that allows them to purchase assets and take advantage of available market opportunities.

In the Saudi market, it is generally preferred to invest in stocks with high liquidity to ensure ease of entry and exit from investments. Liquidity also affects asset price determination, as assets with low liquidity may experience significant price fluctuations due to a lack of buyers or sellers.

Investment funds, whether open or closed, depend on the amount of money flowing into them from investors. The daily trading volume in these funds is an indicator of their attractiveness and liquidity. On the other hand, cash dividend distributions reflect the ability of companies and funds to generate money and redistribute it to investors, which is an attractive element for those seeking regular income.

The Saudi market witnessed strong financial indicators in 2024 and 2025 that reflect the abundance of money and liquidity:
- GDP exceeded $1.3 trillion, reflecting the size of the economy and the volume of money in circulation.
- SAMA's foreign reserves reached approximately 2,400 billion riyals, placing the Kingdom among the highest globally in cash reserves.
- Interest rates reached 5.75% by the end of 2024, impacting the movement of loans and deposits.
- The inflation rate remained at moderate levels (2.4%), while the savings rate increased.
- The market capitalization on Tadawul exceeded 10.2 trillion riyals.
- The average price-to-earnings (P/E) ratio for listed companies reached 15.5 times.
- The average cash dividend yield reached 4.5% annually.
- The assets of the Saudi banking sector exceeded 4.8 trillion riyals.

These indicators reflect the strength of liquidity in the Saudi financial system, providing a supportive environment for growth and financial stability.

The financial sector, led by banks, is the main artery for moving money in the Saudi economy. Banks receive deposits from individuals and companies and reinject them into the economy through loans and investments. In 2023, the banking sector recorded profits of about 135 billion riyals, indicating the expansion of profitability and liquidity.

Major banks such as the National Bank of Saudi Arabia (SNB), Al Rajhi Bank, Riyad Bank, and Alinma Bank compete to attract money from customers and provide diverse financing and investment services. Major investment firms (Jadwa, Al Ahli Capital) manage funds worth billions of riyals, and insurance companies and fintech platforms contribute to circulating liquidity through innovative products and services.

This sector works in parallel with state policies to achieve the goals of Vision 2030, diversify the economy, and support strategic projects, enhancing the importance of money and its pivotal role in economic development.

Interest rates play a pivotal role in determining the cost of money and the liquidity turnover rate in the Saudi financial market. With each increase or decrease in interest rates by SAMA, the cost of borrowing and the return on bank deposits change. Higher interest rates encourage saving and reduce borrowing, often leading to a decline in liquidity available in the market. Conversely, lowering interest rates stimulates spending and investment.

In 2024, raising interest rates to 5.75% increased returns on bank deposits and government bonds, while the cost of borrowing for projects and companies rose. This balance helps mitigate inflation and ensures the stability of the national currency's value, but it requires careful monitoring of its effects on economic growth and the movement of money in the market.

The Saudi financial market has become more open to foreign capital in recent years, especially after its inclusion in global indices such as Morgan Stanley's Emerging Markets Index. The influx of foreign money contributes to enhancing liquidity and diversifying investments.

Large international financial institutions such as BlackRock and Fidelity compete to attract investment opportunities in Saudi stocks and bonds. The Capital Market Authority also allows foreigners to invest under specific regulations, enhancing the amount of money entering the market.

This openness increases liquidity rates, supports asset valuations, and provides new opportunities for companies to raise capital while maintaining oversight and regulation to ensure financial stability and protect local investors.

The Saudi financial sector is witnessing a surge in technological innovation, especially in the field of digital money and electronic payments. The Kingdom has launched initiatives such as Mada Pay and STC Pay, along with government payment platforms, to facilitate the transfer of money between individuals and businesses quickly and securely.

Additionally, the Kingdom, in collaboration with the UAE, has begun testing a central bank digital currency (CBDC) as part of the "Aber" project, paving the way for the launch of a digital riyal in the near future. This transformation enhances the efficiency and cost of liquidity management and opens new horizons for innovation in financial services.

Regulatory authorities aim to ensure that digital money becomes part of a secure, transparent financial system that complies with international standards for combating money laundering and protecting investors.

Despite the abundance of liquidity in the Kingdom, managing money faces various challenges, such as fluctuations in oil prices, changes in global monetary policies, and rapid technological developments. Maintaining a balance between liquidity and investment requires careful oversight to prevent excessive speculation or exposure to uncalculated risks.

Conversely, the Saudi environment offers strong opportunities for money growth through investment in infrastructure projects, digital transformation, and expanding the base of local and foreign investors. New legislation and strict governance contribute to protecting liquidity and enhancing investor confidence in the market.

The role of financial institutions, regulatory bodies, and modern technologies remains crucial in achieving the required balance and sustaining the flow of money within the economy.

Money plays a fundamental role in supporting the comprehensive development programs of Saudi Vision 2030, as available liquidity is used to finance major projects such as NEOM, the Red Sea, and digital infrastructure. The Public Investment Fund (PIF) injects money into new sectors to diversify income sources and reduce dependence on oil.

Government and private liquidity contributes to stimulating innovation, attracting foreign investments, and providing new job opportunities for Saudis. Money also enhances the Kingdom's ability to face global economic challenges and ensure sustainable growth in the long term.

This vision emphasizes the importance of effective money management and its strategic distribution across different sectors to achieve sustainable development goals.

In 2024 and 2025, several developments significantly impacted the movement of money in the Saudi market, most notably:
- The Kingdom's credit rating was raised to AAA, boosting investor confidence and lowering financing costs.
- New companies were listed in the financial market, creating investment opportunities and injecting additional liquidity.
- The continued policy of raising interest rates to stabilize the riyal and encourage saving.
- The launch of new money market mechanisms such as the interbank repo market to increase liquidity management flexibility.
- Initiatives to develop a central bank digital currency (CBDC) and enhance financial innovation.
- Amendments to real estate investment fund regulations to improve their liquidity and attractiveness to investors.

These events reflect the interaction of government policies with developments in global and local markets, striving to achieve a sustainable balance in the flow of money within the Saudi economy.