Riyal to Dollar Exchange Rate: Currency Stability and Its Importance

The Saudi Riyal is the official currency of the Kingdom of Saudi Arabia since the establishment of the modern state, symbolized by the code (SAR). In 1986, the Kingdom decided to peg the Riyal to the US Dollar at a fixed rate close to 3.75 Riyals per Dollar, known as a pegged exchange rate system. This system requires the Saudi Arabian Monetary Authority (SAMA) to inject or withdraw liquidity from the market as needed to ensure that the official rate remains relatively unchanged. This peg primarily relies on the balance of supply and demand for Dollars and Riyals, with SAMA providing Dollars on demand in exchange for Riyals, and vice versa. The main objective of this policy is to achieve long-term economic stability, reduce currency fluctuation risks, enhance investor confidence, and ensure a stable business environment that supports project financing and investment flows. Compared to free or floating exchange rate systems, the fixed peg of the Riyal provides significant stability but simultaneously limits the flexibility of Saudi monetary policy, as SAMA often must follow US monetary policy movements to maintain interest rate differentials and ensure capital does not exit.

Since the implementation of the fixed peg policy in 1986, the Riyal to Dollar exchange rate has not experienced significant changes. The goal of the peg was to limit speculation and sharp fluctuations that the currency had faced during previous historical periods, especially given the heavy reliance on oil revenues denominated in Dollars. The official rate has remained at 3.75 Riyals per Dollar, with limited interventions from the central bank during global crises or oil market fluctuations. Historically, the Kingdom has benefited from this stability during international financial crises, such as the Asian crisis in the late 1990s, the global financial crisis of 2008, and the COVID-19 pandemic in 2020. During all these phases, the Riyal remained stable, providing the Saudi economy with greater flexibility to deal with external shocks. Many experts believe that this stability has helped the Kingdom build long-term financial and economic policies and attract substantial investments, particularly in infrastructure and energy sectors. It has also contributed to the stability of local asset prices and created a competitive and stable business environment compared to many emerging markets suffering from currency fluctuations.

The Saudi Arabian Monetary Authority (SAMA) is responsible for maintaining the stability of the Riyal against the Dollar. To achieve this, SAMA relies on several key tools: managing substantial foreign reserves (over $400 billion as of 2024), intervening in the currency market when necessary, and setting local interest rates in line with movements of the US Federal Reserve. When demand for Dollars increases (for example, due to rising imports or capital outflows), SAMA provides Dollar liquidity from its reserves in exchange for withdrawing Riyals from the market, preventing a decline in the value of the Riyal. Conversely, the same applies in cases of increased demand for Riyals. SAMA also employs cautious monetary policies to control inflation rates and ensure the stability of the money supply. This includes raising or lowering interest rates in parallel with the US Federal Reserve to ensure that there is not a significant gap in returns between the two markets, which could lead to capital outflows or pressure on the currency. This integrated system has made the Saudi Riyal one of the most stable currencies in the region and the world.

Oil revenues form the backbone of the Saudi economy, as oil is exported and most transactions are settled in US Dollars. When oil prices rise, large amounts of Dollars flow into the Kingdom, enhancing SAMA's ability to support the peg with foreign reserves. Conversely, during periods of declining oil prices, the financial balance and reserves may come under pressure, but even during the worst periods (such as the sharp drop in oil prices in 2020), the Kingdom managed to maintain the peg due to its precautionary policies and large reserves. The close relationship between oil and the Riyal means that stability in the energy sector is a guarantee for currency stability. Furthermore, diversifying income sources under Vision 2030 gradually reduces reliance on oil and strengthens the fundamentals of the economy, supporting the continuity of the peg in the long term.

All stocks and securities in the Saudi financial market (Tadawul) are priced in Saudi Riyals, making the stability of the Riyal against the Dollar one of the most important factors in mitigating investment risks in the local market. For listed companies, especially those relying on imports or exports in Dollars, the fixed exchange rate provides accurate forecasts for costs and revenues. Foreign investors benefit from the stability of the currency when converting profits or capital abroad, without worrying about exchange rate fluctuations. Additionally, monetary stability enhances the attractiveness of the Saudi market for public offerings and foreign investment funds. In a volatile currency environment in some emerging markets, the Riyal gives investors a competitive advantage for saving and investing in the long term, making the Saudi market one of the most stable in the region.

Saudi monetary policy largely follows the movements of US monetary policy due to the pegging of the Riyal to the Dollar. When the US Federal Reserve raises interest rates, SAMA often follows with a similar or close increase to maintain the attractiveness of local assets and prevent capital outflows. In 2024, Saudi interest rates rose to about 4.75%, in parallel with US tightening monetary policies. When the Federal Reserve begins to lower rates, SAMA takes similar actions. This interconnection limits Saudi Arabia's ability to use monetary policy independently to address domestic inflation or stimulate growth, but the trade-off is currency stability and investor confidence. SAMA carefully manages this balance and employs other tools such as reserve requirements and liquidity management to maintain equilibrium between monetary stability and supporting economic growth.

Foreign reserves at the Saudi Arabian Monetary Authority are the cornerstone of the fixed peg policy. These reserves exceeded $400 billion in late 2024, diversified across various assets (US bonds, treasury bills, deposits, liquid assets). This massive liquidity gives SAMA the ability to meet any demand for Dollars in the local market, regardless of size, thus maintaining the stability of the Riyal. In times of crises or external shocks, SAMA resorts to using part of these reserves to stabilize the market and avoid any pressure on the exchange rate. SAMA manages the reserves conservatively, maintaining high liquidity and spreading risks across high-credit-rated international assets. This approach enhances the credibility of monetary policy and reassures investors and markets that the Kingdom can defend its exchange rate under all circumstances.

The stability of the Riyal against the Dollar directly reflects on the lives of consumers and businesses in the Kingdom. For consumers, price stability leads to more stable prices for imported goods (such as electronics and cars) and reduces risks of imported inflation. For businesses, especially those dependent on imports or exports, the ability to plan financially over the long term without worrying about changes in raw material costs or revenues due to currency fluctuations is beneficial. Additionally, monetary stability enhances confidence among international trading partners and facilitates the signing of long-term contracts. Conversely, the economy may lose some flexibility in responding to external shocks due to limited monetary policy, but the benefits of stability and confidence outweigh these challenges in the current Saudi context.

The Saudi Riyal is not the only currency pegged to the Dollar in the Gulf region, as other currencies like the UAE Dirham (AED) and the Qatari Riyal (QAR) also follow a fixed peg system. All these currencies benefit from the stability of oil markets and the flow of Dollars, but Saudi Arabia represents the largest economy in the region, giving the Riyal greater weight in terms of regional and international influence. Compared to other global currencies like the Euro, Yen, or British Pound, the Riyal enjoys much higher stability than emerging market currencies, approaching the stability of major currencies pegged to the Dollar. This makes the Riyal a preferred option for saving and investing within Gulf countries and enhances the attractiveness of the Saudi market for regional and international investors.

The Saudi banking sector significantly benefits from the stability of the Riyal against the Dollar. Saudi banks can offer long-term loans and financing programs with high confidence, as the value of loans is not exposed to currency fluctuation risks. Additionally, banks have substantial Dollar liquidity, thanks to SAMA's support and large foreign reserves. Furthermore, monetary stability attracts foreign deposits and facilitates international trade financing operations. The Saudi banking sector enjoys strong solvency and is subject to close supervision by SAMA, enhancing confidence in the financial system as a whole. Given these factors, the fixed peg is one of the key pillars of stability in the Kingdom's banking system.

The stability of the Riyal against the Dollar is a major attraction for foreign direct and indirect investments. Foreign investors prefer markets with stable currencies to reduce risks associated with converting profits and capital later. Local companies also benefit from stable costs and revenues denominated in Riyals, enhancing the business environment and encouraging long-term investment planning. The Saudi government supports this trend through clear and transparent policies and banking regulations that facilitate the entry and exit of capital within a controlled and organized framework. Conversely, the fixed peg limits the Kingdom's ability to use monetary policy to attract investments during recessions, but it provides greater stability in the long run.

According to the latest reports from Reuters and the Saudi Arabian Monetary Authority, the Riyal to Dollar exchange rate has not seen any official change during 2024-2025, remaining at 3.75 Riyals per Dollar. The Saudi government has repeatedly affirmed its commitment to the pegging policy and its intention not to float the currency or adjust the exchange rate. Meanwhile, global markets have experienced fluctuations in the US Dollar due to movements in US monetary policy, but the Kingdom has followed these movements by raising or lowering local interest rates to maintain stability. Among the recent technical developments, SAMA continues to explore the possibilities of issuing a sovereign digital currency (CBDC) in collaboration with Gulf countries, but as of the end of 2025, no official digital currency for the Riyal has been launched. On the macroeconomic front, non-oil sectors continued to grow by about 4.2% in the first quarter of 2025, supporting monetary stability. All these factors have reinforced confidence in the continuity of the peg and the stability of the local financial market.

Despite the stability of the Riyal against the Dollar for decades, there are future challenges that may compel the Kingdom to reassess its policies in the long term. Among these challenges are: fluctuations in global oil prices, transformations in the global economy such as the rise of digital currencies or baskets of alternative currencies, and changes in the balance of payments due to sudden political or economic developments. Additionally, continued reliance on the Dollar makes the Saudi economy susceptible to the effects of US monetary policy. However, current data indicates that the Kingdom enjoys strong reserves and an increasingly diversified economy, placing it in a strong position to defend the peg. Monitoring global markets and their developments remains essential for decision-makers to ensure the continuity of monetary stability and support the national economy.