Currencies in the Saudi Financial Market: Stability and Global Impact

Currency is a basic unit of account used to exchange goods and services and is an essential tool for organizing economic relations. In Saudi Arabia, the Saudi Riyal is the official currency, and the national economy is closely linked to the stability of this currency. Since the 1980s, the Kingdom has adopted a policy of pegging the Riyal to the US dollar, providing significant stability to the Riyal and reducing the risks of fluctuations of the local currency against foreign currencies. This stability enhances the confidence of local and foreign investors and directly reflects the Kingdom's ability to manage cash liquidity and foreign reserves. Foreign currencies such as the dollar, euro, and yen indirectly affect the Saudi economy, especially regarding the cost of imports and exports, as well as the valuation of listed company assets in the stock market. Hence, understanding currencies in the Saudi context is crucial, as currency stability is a key factor in ensuring sustainable economic growth.

The Saudi Riyal (SAR) is the foundation of the financial system in the Kingdom and has demonstrated relative stability over decades. The monetary policy in Saudi Arabia is based on pegging the Riyal to the US dollar at a fixed rate of approximately 3.75 Riyals per dollar, granting the national economy a high degree of stability. This peg limits exchange rate fluctuations and makes the Riyal less susceptible to sudden changes that may occur in global currencies. Additionally, the stability of the currency facilitates import and export operations and reduces the risks of cross-border financial transfers. The Saudi Arabian Monetary Authority (SAMA) is responsible for managing monetary policy, as well as maintaining substantial foreign currency reserves to ensure the Kingdom's ability to defend the value of the Riyal in times of crisis. Local interest rates are influenced by US monetary policy, as they are adjusted to keep pace with movements of the US Federal Reserve, which in turn reflects on the cost of borrowing and local financing.

Foreign currencies such as the US dollar, euro, and British pound play a pivotal role in the Saudi economy, even though the Riyal is the currency used in all local transactions. This is because most national revenues, especially from oil, are calculated in US dollars. Therefore, any change in the value of the dollar against other currencies can affect the level of government revenues and the value of foreign reserves. Moreover, Saudi companies that rely on imports or have foreign transactions are affected by exchange rate fluctuations, which may lead to changes in operating costs or profits. Furthermore, movements in global currencies affect capital flows and foreign investments in the Saudi stock market, as investors seek currency stability and exchange rate forecasts. This context requires companies and investors to continuously monitor global currency movements and assess their potential impact on their businesses and investments.

The foreign exchange market, or Forex, is the largest global financial market, where trillions of dollars are traded daily. In Saudi Arabia, foreign currencies are not traded directly on the Tadawul exchange but are managed through local banks and licensed brokerage firms. The Saudi Capital Market Authority and SAMA oversee and regulate trading activities, having issued several warnings against dealing with unlicensed Forex brokers or misleading advertisements promising high returns without a realistic basis. Investors wishing to trade currencies should ensure they only deal with licensed entities, as currency trading involves high risks due to price volatility and leverage. This regulation aims to protect investors and ensure the integrity of the local financial market, limiting the spread of unregulated activities that could expose investors to significant financial risks.

Foreign reserves play a fundamental role in supporting the stability of the Saudi Riyal, as SAMA holds substantial reserves exceeding $300 billion by the end of 2024. These reserves cover the Kingdom's obligations to the outside world and ensure the country's ability to finance imports and defend the value of the Riyal in emergencies. The bulk of these reserves is denominated in US dollars, with partial diversification towards other major currencies such as the euro and yen. A high level of cash liquidity and foreign reserves provides the Saudi economy with greater flexibility in facing global shocks, such as fluctuations in oil prices or financial crises. Additionally, having sufficient liquidity supports the ability of local banks and financial institutions to meet the needs of both the public and private sectors without exposing the financial system to liquidity shortages or inflationary pressures.

The exchange rate of the Saudi Riyal against the US dollar remains stable at 3.75 Riyals per dollar, providing the necessary economic stability. However, against other currencies, the exchange rate fluctuates according to the movement of the dollar against those currencies. For example, the euro reached about 4.00 Riyals in the first half of 2024, then fell to 3.80 Riyals as the euro improved globally. The British pound reached 4.5 Riyals before dropping to 4.2 Riyals in 2025. The Chinese yuan recorded 0.53 Riyals before declining to 0.51 Riyals. Cryptocurrencies, such as Bitcoin, have experienced significant fluctuations, with Bitcoin exceeding $120,000 (approximately 450,000 Riyals) in mid-2025. These movements reflect the impact of global economic policies, inflation, and interest rates on the local market, although the Riyal remains largely insulated due to the dollar pegging policy.

Saudi companies, especially those that rely on imports or have foreign branches, are directly affected by fluctuations in global currency prices. An increase in the cost of foreign currencies may raise import costs, while exporting companies may benefit from a weaker Riyal against foreign currencies, increasing their profits when converting revenues to Riyals. To mitigate these risks, some companies resort to hedging strategies such as futures contracts and currency options or agree on fixed exchange rates with their international partners. Local banks play a key role in providing hedging services and managing currency risks for companies and institutions. It is essential for companies to carefully manage currency risks, as significant fluctuations can impact profit margins, cash flows, and asset valuations, especially in sensitive sectors such as industry, energy, and retail.

Currency trading differs from stock trading in several fundamental aspects. Stock trading occurs through the Tadawul market, where individuals invest in ownership of listed companies and receive profits and dividends based on company performance. In contrast, currency trading (Forex) is speculation on the movement of exchange rates between two currencies without owning a physical asset. The currency market is characterized by high liquidity and significant volatility, and investors often use leverage, increasing the risks. Conversely, the stock market is more regulated and subject to strict oversight by the Capital Market Authority, with higher transparency in information. Investors must be aware that currency trading involves high risks and is not subject to the same stringent regulatory controls as the stock market, making consulting a licensed financial advisor essential before making any decisions.

The Saudi Capital Market Authority (CMA) and the Saudi Arabian Monetary Authority (SAMA) play a pivotal role in regulating and monitoring the currency market. The authority sets strict standards for licensing financial brokerage firms and monitors advertisements and promotional activities related to foreign currency and cryptocurrency trading. The authority also issues periodic warnings against dealing with unlicensed platforms or brokers and provides investors with educational tools about the risks associated with currency trading. SAMA manages monetary policy and monitors liquidity and foreign reserves, working to ensure the stability of the Saudi Riyal. Strict regulation aims to protect investors from fraud and uncalculated risks and enhances confidence among market participants. It is essential for investors to ensure they are aware of the list of licensed entities and comply with official instructions before engaging in any currency-related transactions.

Digital currencies, such as Bitcoin and Ethereum, have seen significant global growth; however, the Saudi market approaches them with great caution. Regulatory authorities in Saudi Arabia have not recognized cryptocurrencies as an official means of payment or a regulated investment tool, issuing warnings about the high risks associated with trading them. The Capital Market Authority and SAMA have stressed the importance of not promoting digital currencies and not dealing with them within the local market. Nevertheless, some individuals may use external global platforms, but this is done at their own risk and without local regulatory protection. Digital currencies are characterized by significant price volatility, lack of legal guarantees, and high security and technical risks. Therefore, regulatory authorities always recommend caution and advise against engaging in digital currency trading without sufficient knowledge and a full understanding of the risks.

Managing currency risks has become an urgent necessity for Saudi companies, especially those that rely on imports or have extensive foreign dealings. Hedging involves using financial instruments such as futures contracts, options, or agreements on future exchange rates with banks to mitigate the impact of currency fluctuations on the company's financial results. Some companies also diversify their income sources and reserves in foreign currencies to ensure greater flexibility. Local banks offer specialized products and services for managing currency risks, including providing advice on the best hedging strategies. Hedging does not eliminate risks entirely but helps reduce them and gives companies greater clarity in cost and revenue forecasts. It is essential for companies and investors to adopt clear policies for managing currency risks in collaboration with licensed financial professionals.

As Saudi investors seek to achieve diversified returns, comparing currencies with other assets such as stocks, real estate, and gold becomes prominent. Currencies are considered a fast-trading tool with high liquidity but carry significant volatility risks, especially in global markets. Stocks provide opportunities for growth and returns through company profits and dividends, while gold and precious metals are viewed as safe havens during crises and currency fluctuations. Real estate in Saudi Arabia represents a long-term investment linked to local demand and urban development. Choosing the most suitable investment tool depends on financial goals, risk tolerance, and a deep understanding of each market's nature. It is always advisable to diversify and not rely on a single asset to reduce risks, with the necessity of consulting a financial specialist before making a decision.

The years 2024 and 2025 witnessed several developments in the global currency market, most notably the decline of the US dollar against major currencies due to the expansionary monetary policies of the Federal Reserve. This decline led to a relative increase in the euro and the British pound, while the Saudi Riyal maintained its stability thanks to the dollar pegging policy. Meanwhile, cryptocurrencies recorded record highs, with Bitcoin exceeding $120,000 in July 2025, attracting interest from both global and Saudi investors. Additionally, some emerging currencies experienced notable changes due to economic crises in their countries. These developments underscore the importance of monitoring global events and their indirect impact on the Saudi economy, especially concerning import costs, investment flows, and the stability of the local financial system.