From Dollar to Riyal: The Monetary Shift in Saudi Finance

The term 'From Dollar to Riyal' in Saudi Arabia refers to the gradual shift in preferences of individuals, institutions, and companies from dealing in US Dollars to the Saudi Riyal in daily financial transactions and investments. This concept has emerged as a result of financial policies aimed at strengthening the use of the national currency and reducing reliance on the Dollar in the local market. The Riyal is pegged to the Dollar at a fixed rate, making the transition between the two currencies unaffected by exchange rate fluctuations, but rather controlled by liquidity factors, banking policies, and investor trends.

The Saudi government, through SAMA, seeks to protect monetary stability through this peg, while the state invests a significant portion of its Dollar reserves abroad. Locally, banks are active in launching campaigns to encourage customers to convert their deposits from Dollars to Riyals by raising interest rates or offering incentives, aiming to increase the use of the Riyal in lending and financing. This transition represents a strategic step supporting the local economy, especially amid strong growth in the non-oil sector, and maintains the sustainability of the currency peg in the face of international pressures.

The Saudi Arabian Monetary Authority (SAMA) plays a pivotal role in managing monetary policy and ensuring currency stability. For decades, SAMA has maintained the peg of the Riyal to the Dollar, achieving long-term stability in the exchange rate (3.7500 Riyals per Dollar). However, recent times have seen a greater emphasis on encouraging the use of the Riyal in local transactions.

SAMA sets local interest rates in line with US monetary policy movements, ensuring that there is no funding gap affecting market stability. In recent years, with rising US interest rates, SAMA has raised local interest rates (repo) to around 5% by the end of 2024, which has helped attract liquidity to the Riyal and reduced the appeal of the Dollar within the banking system. Furthermore, SAMA monitors the level of foreign reserves (which reached about $500 billion at the end of 2024) to ensure coverage for the local currency.

These policies aim to enhance confidence in the Riyal, ensure banks can meet lending and investment needs in the local currency, and protect the economy from fluctuations in global currencies.

Economic data for the period 2024-2025 show continued growth and strength in the financial sector in Saudi Arabia. According to official reports, real GDP growth reached 2.7% in the first quarter of 2025, supported by a 4.2% growth in the non-oil sector. This reflects the local economy's ability to absorb liquidity in Riyals without inflationary pressures.

On the other hand, the inflation rate was about 2% annually, which is within acceptable levels for the central bank and reflects price stability. The Saudi Stock Market (Tadawul) saw its general index rise from 9,200 points at the beginning of 2024 to around 11,300 points by the end of the year, supported by strong corporate earnings, especially in non-oil sectors.

These indicators confirm that the transition from Dollar to Riyal is occurring in a robust economic environment, where financial and monetary policies enhance investor confidence in the national currency and stimulate further transactions in Riyal in banking and investment activities.

The Saudi banking sector is the backbone of the liquidity transition from Dollar to Riyal. The banking system includes more than 25 banks, managing assets exceeding 4 trillion Riyals according to 2024 estimates. Major banks such as the National Commercial Bank (1111), Al Rajhi Bank, Riyad Bank, and the Saudi French Bank lead deposit attraction and lending operations in Riyals.

Recently, banks have launched campaigns to increase deposits in Riyals by raising interest rates or offering other incentives. Banks are also trying to narrow the gap between returns on Dollars and Riyals, especially after the rise in US interest rates. However, the fixed peg to the Dollar remains the main guarantee for currency stability, allowing banks flexibility in managing liquidity without significant risks.

Banks benefit from increased deposits in Riyals by enhancing their ability to lend locally and finance national projects, positively reflecting on the macro economy and the stability of the financial system.

Competition for converting deposits from Dollar to Riyal is concentrated among major Saudi banks, which compete to offer the best returns and incentives to attract local customers. In addition to banks, exchange companies and financial technology (FinTech) firms play an increasingly important role in facilitating conversions and providing services at competitive prices.

Foreign banks operating in Saudi Arabia, such as Standard Chartered Bank and some international institutions, also offer accounts and transfers in Dollars, but their impact remains limited compared to local banks. On the other hand, exchange companies like Western Union target individuals and expatriates in sending and receiving money, but they do not directly affect monetary policies.

The emergence of financial technology companies has added a new dimension to competition, as they offer currency conversion apps and multi-currency accounts with low fees, providing quick and flexible alternatives for individuals. However, their scale remains smaller compared to traditional banks, but their role is expected to grow with increasing interest in digital technologies in the Saudi financial sector.

The Saudi Stock Market (Tadawul) is a direct reflection of investor confidence in the economy and the national currency. All transactions in the market are conducted in Riyals, making exchange rate stability a key factor in the market's attractiveness to local and foreign investors.

As the use of the Riyal in deposits and investments increases, the ability of listed companies to plan financially and distribute profits steadily improves. Additionally, currency stability gives foreign investors confidence that they will not be exposed to currency fluctuations when converting their profits abroad. In 2024, Tadawul saw the general index rise to around 11,300 points, attributed to investor confidence in the sustainability of economic growth and conservative financial policies.

Moreover, stimulating liquidity in Riyals contributes to increasing trading volumes and supporting small and medium-sized enterprises by providing local financing, thereby enhancing economic diversification and reducing reliance on traditional sectors.

In recent years, a series of notable developments have occurred in Saudi financial policy and international investment movements. In January 2025, Saudi Arabia announced plans to enhance trade relations with the United States worth $600 billion over four years, while the US President called for Saudi investments estimated at $1 trillion in exchange for certain oil policies.

Locally, the Public Investment Fund (PIF) launched international Dollar bonds with a ten-year maturity, confirming the ongoing need for Dollar financing in major projects. Conversely, Saudi banks have launched strong campaigns to convert deposits from Dollar to Riyal and raised returns on savings accounts in Riyals, leading to fierce competition among banks to attract national liquidity.

Among the notable regional events, Saudi Arabia deposited $500 million in the Yemeni central bank to support salaries and services, indicating a withdrawal of part of the Dollar reserves and emphasizing the importance of compensating for this money by strengthening the Riyal base domestically.

These developments reflect a delicate balance between maintaining foreign investments and stimulating local liquidity in Riyals, within a balanced financial strategy aimed at supporting growth and stability.

Saudi Arabia's foreign reserves, which reached about $500 billion at the end of 2024, are the main safety valve for the Riyal's peg to the Dollar. The Saudi Arabian Monetary Authority maintains these reserves to cover external obligations and absorb any shocks in the global market.

Stability of reserves at high levels gives SAMA the ability to intervene in the currency market when necessary and protects the official exchange rate (3.75 Riyals per Dollar) from any fluctuations. Additionally, having this coverage enables banks to provide liquidity in Riyals with confidence and reduces the likelihood of any financial disruptions.

However, any significant depletion of reserves (such as supporting brotherly countries or financing large external projects) necessitates policies to enhance internal liquidity in Riyals, such as raising interest rates or stimulating the conversion of deposits from Dollar to Riyal. This careful balance is one of the secrets of the success of Saudi monetary policy in recent years.

One of the most notable results of the transition from Dollar to Riyal is the restructuring of interest returns on banking deposits. In recent years, interest on Dollar deposits was higher than on Riyal deposits, leading many customers to prefer Dollar accounts. With rising local interest rates, banks have begun to raise returns on deposits in Riyals (from 1-2% to levels approaching 3-4% at times) to attract customers and encourage them to convert.

This transition reduces the gap between returns on Dollar and Riyal, increasing the attractiveness of saving in the local currency. On the other hand, banks are weakening Dollar incentives to prevent the depletion of foreign liquidity. In the short term, banks' net interest margins may be affected, but the increase in local deposits compensates for this by expanding the lending base and growing business operations in Riyals.

Additionally, stability in interest rates on Riyals supports investor confidence and reduces currency fluctuation risks on local savings and investments.

The transition from Dollar to Riyal represents an opportunity to enhance financial stability for local investors and companies. With a stable exchange rate, currency risks decrease, facilitating financial planning and contributing to profit sustainability. Listed companies in Tadawul benefit from distributing dividends in Riyals, and their opportunities for obtaining local financing at reasonable costs are multiplied.

For individual investors, the transition means increased saving opportunities with better returns and protection of purchasing power in the local market. At the same time, reducing reliance on the Dollar minimizes their exposure to global market fluctuations. As banking campaigns to stimulate conversion continue, individuals have more flexible options between saving accounts in Riyals and Dollars according to their financial goals.

On the challenge side, banks face the necessity of balancing returns on Riyals and Dollars, especially as some customers continue to prefer the Dollar as a safe haven. Additionally, any external pressures on foreign reserves require a swift response from monetary policies to ensure market stability is not affected.

Financial technology (FinTech) has become a key driver in facilitating conversions between Dollar and Riyal in Saudi Arabia. Several local companies and applications have launched digital solutions that allow individuals and businesses to transfer money between currencies quickly and at relatively low costs compared to traditional banks.

These solutions include digital wallet apps, currency trading platforms, and multi-currency savings accounts. Some major banks have also adopted digital technologies to facilitate conversion processes and offer tailored promotions for customers who prefer the local currency.

Moreover, financial technology contributes to enhancing transparency, reducing the time required for transfers, and providing more competitive options in exchange rates and fees. This role is expected to expand in the future as more customers shift to digital channels and government support for developing the FinTech sector in the Kingdom increases.

The transition from Dollar to local currency is not limited to Saudi Arabia; other countries in the Gulf and around the world have experienced similar shifts. The UAE, for example, pegs the Dirham to the Dollar and has launched campaigns to encourage the use of the Dirham in local transactions. Kuwait and Bahrain also follow similar policies, albeit with some flexibility in their exchange rates.

In Latin America, countries like Argentina and Ecuador have tested 'de-dollarization' policies, but with varying results due to weak reserves or economic fluctuations. In contrast, the Saudi environment is characterized by a strong peg, massive reserves, and a robust banking system, making the transition safer and more stable.

Internationally, Saudi Arabia remains a model for achieving a balance between managing reserves, protecting the exchange rate, and stimulating the use of the local currency within the framework of effective monetary policies that consider the requirements of economic development and financial stability.

The Capital Market Authority (CMA) and the Saudi Arabian Monetary Authority (SAMA) monitor monetary transitions in the market and ensure compliance with regulations and directives. So far, the CMA or SAMA has not issued binding instructions regarding the conversion from Dollar to Riyal, but they are monitoring market trends and working to protect the rights of investors and clients.

The CMA's role is limited to ensuring the transparency of banking offers, requiring banks to disclose interest rates, and prohibiting monopolistic practices or undue pressure on clients to convert. It also monitors the compliance of listed companies with financial disclosures regarding their profit sources and returns in the local currency.

Regulatory authorities emphasize the importance of consulting financial professionals before making any significant currency conversion decisions and encourage individuals and companies to carefully study their options within the framework of risk management and capital protection. This flexible regulatory approach enhances investor confidence in the Saudi financial system.