Dollar to Riyal: Exchange Rate and Its Impact on Saudi Market

The Dollar to Riyal exchange rate (USD/SAR) is the rate at which the US dollar is exchanged for the Saudi riyal. In the Kingdom of Saudi Arabia, the riyal has been officially pegged to the dollar since 1986 at a level of 3.75 riyals per US dollar. This peg is not arbitrary; it is a strategic choice adopted by SAMA to ensure the stability of local prices, protect the purchasing power of citizens, and facilitate international trade transactions. In the Saudi financial market (Tadawul), most corporate assets are valued in riyals, while export revenues from oil and major industries come in dollars. Therefore, the stability of this rate enhances confidence and reduces risks associated with currency fluctuations, benefiting all economic parties, including companies, local and foreign investors, and consumers.

The Saudi Arabian Monetary Authority (SAMA) is responsible for pegging the riyal to the dollar, ensuring the stability of the exchange rate by managing foreign reserves and coordinating monetary policies with the US Federal Reserve. The peg relies on a policy of maintaining the official exchange rate at 3.75 riyals per US dollar, allowing for slight daily price variations at banks and exchange offices due to commissions and changes in supply and demand. To maintain this peg, SAMA monitors capital flows and takes measures such as raising or lowering local interest rates in tandem with decisions from the US Federal Reserve. SAMA also manages substantial reserves exceeding 500 billion US dollars, enabling it to intervene when necessary to stabilize the market and protect the value of the riyal.

During 2024 and 2025, the Dollar to Riyal exchange rate continued to remain within its historically stable range around 3.75 riyals per dollar, with an annual average of 3.7523 riyals according to specialized currency platforms. Daily prices fluctuated between 3.735 and 3.795 riyals, reflecting SAMA's commitment to a strict monetary policy. During the same period, the deposit rate at SAMA was 5.25%, and the Kingdom managed to maintain foreign reserves close to 500 billion dollars. These indicators highlight the strength of the Saudi economy and its ability to sustain the peg policy, despite global changes in interest rates and economic fluctuations.

The stability of the exchange rate has a direct and indirect impact on several sectors in the Kingdom:
- Banking Sector: Saudi banks benefit from currency stability in providing currency exchange and risk management services.
- Oil and Gas Sector: Most revenues come in dollars, and the stability of the riyal facilitates clear revenue conversion in financial reports.
- Industrial Sector: Stability in imported costs enhances companies' financial planning capabilities.
- Consumption and Retail: Prices of imported goods remain relatively stable, reducing inflation volatility.
- Real Estate and Infrastructure: Stability in the costs of imported supplies contributes to accurate project pricing.
- Foreign Investment: It allows foreign investors to transfer capital without fearing losses due to currency fluctuations.

The peg of the riyal to the dollar is considered one of the fundamental pillars of financial stability in the Kingdom. It protects the national economy from oil price shocks and mitigates the effects of global economic crises on the local market. It also provides local and foreign investors with high confidence in the stability of their investments' value, enhancing the attractiveness of the Saudi market as a safe investment destination. Additionally, this peg helps keep inflation rates low and makes financial and economic policy planning more effective and clear.

Foreign reserves play a pivotal role in SAMA's ability to maintain the exchange rate of the riyal against the dollar. The Kingdom's possession of substantial reserves exceeding 500 billion US dollars grants it the ability to intervene in the market whenever necessary, whether to meet demand for dollars or to stabilize any sudden fluctuations. These reserves are primarily composed of dollar-denominated assets, enhancing the robustness of the peg and preventing the riyal from facing any market pressures that could lead to a change in the official rate.

Given the riyal's peg to the dollar, any change in US monetary policy, especially interest rates set by the Federal Reserve, directly affects the Saudi market. When the US Federal Reserve raises interest rates, SAMA is compelled to take similar actions to maintain capital flows and prevent speculation on the riyal. This ensures that the gap between local and US interest rates remains within a limited range, protecting the stability of the exchange rate. Additionally, any shifts in the global value of the dollar affect Saudi import and export prices, but the peg of the riyal reduces the internal impact of these shifts.

Despite the stability of the official peg, there are slight differences between the selling and buying prices of the dollar in Saudi banks and exchange offices. These differences often do not exceed a few halalas (0.01 to 0.05 riyals) and are due to factors such as conversion commissions, variations in liquidity sources, and daily supply and demand changes. These differences are considered normal in any pegged economy and do not indicate real fluctuations in the official exchange rate.

Most Gulf countries, such as the UAE, Qatar, and Bahrain, also peg their currencies to the US dollar, with slight differences in the official exchange rate. This provides the region with relatively close monetary stability and reduces the risks of currency fluctuations in intra-regional trade, travel, and tourism. In contrast, other global currencies such as the euro, British pound, and Japanese yen are not directly pegged to the dollar, leading to greater fluctuations in their values against the riyal. These differences affect the cost of imports from Europe and Asia, but their impact remains limited due to the strength of the Saudi peg to the dollar.

Saudi stock prices are indirectly affected by the Dollar to Riyal exchange rate. Exporting companies like Aramco and SABIC benefit from the stability of the exchange rate when converting revenues from dollars to riyals, while companies importing raw materials know their costs in advance without surprises from currency fluctuations. This stability makes financial performance analysis clearer and reduces unexpected investment risks. The stability is also reflected in the confidence of foreign investors, who can transfer their capital without fearing value erosion due to fluctuations in the local currency's exchange rate.

In 2024 and 2025, there were no significant changes in the policy of pegging the riyal to the dollar; rather, SAMA reaffirmed its commitment to this policy as a strategic choice supporting economic stability. Key developments included raising local interest rates to align with the US Federal Reserve, improving the public budget due to rising oil prices, and continued inflows of foreign investments into the Saudi stock market. The market has not recorded any attempts to change the peg system or launch an official digital currency so far, despite technical discussions about the future of digital currencies and improvements in digital financial services.

Despite the current strength of the peg, there are future challenges that may face the Dollar to Riyal peg policy, such as sharp fluctuations in oil prices, changes in global monetary policies, or sudden economic crises. Additionally, innovations in digital currencies and global financial markets pose regulatory and technological challenges. However, the size of foreign reserves, the strength of the Saudi economy, and the commitment of official entities make the continuation of the peg the most likely scenario in the foreseeable future.

The stability of the Dollar to Riyal exchange rate is an important attraction for foreign investors. They can transfer their capital to and from the Kingdom without fearing losses due to currency fluctuations. Additionally, a stable economic environment makes investing in Saudi stocks and funds a safer option. This stability enhances the confidence of international financial institutions in the Saudi market, contributing to raising the Kingdom's credit rating and reducing government and private financing costs.

Exchange rate policies and their supervision are directly overseen by SAMA and the Capital Market Authority. These entities ensure transparency, protect investors, and regulate financial transactions to achieve monetary and financial stability. Regulatory authorities always advise caution when dealing with foreign currencies or high-risk financial products and recommend consulting a licensed financial advisor before making any investment or financial decisions related to the exchange rate.