Currency Changes in the Saudi Financial Market: Regulation and Impact

Currency changes refer to the trading and exchange between different currencies at prices determined by supply and demand forces, influenced by global economic and political factors. In global markets, the currency market is known as Forex, where trillions of dollars are exchanged daily among major currencies such as the US dollar, euro, Japanese yen, and British pound. In Saudi Arabia, the situation differs slightly due to the Saudi riyal being pegged to the US dollar since 1986 at an almost fixed rate (3.75 riyals per dollar). This peg reduces fluctuations in the riyal's exchange rate and limits the direct impact of currency changes on the local economy. However, currency changes still play an important role in sectors that rely on imports or international investment. The Saudi Central Bank (SAMA) manages monetary policy, while the Capital Market Authority (CMA) regulates trading in financial instruments related to currencies, such as contracts for difference (CFDs). Thus, it can be said that the concept of currency changes in Saudi Arabia is closely linked to the banking and regulatory framework, aiming to achieve financial stability while maintaining limited openness to global markets.

Regulation plays a fundamental role in the currency market in Saudi Arabia, where the Saudi Arabian Monetary Authority (SAMA) and the Capital Market Authority (CMA) share oversight of financial stability. SAMA is responsible for stabilizing the riyal's exchange rate against the dollar and managing foreign reserves, granting significant stability to the Saudi riyal. On the other hand, the CMA establishes regulations governing the trading of financial instruments linked to currencies, such as futures contracts and CFDs on foreign currencies, and monitors licensed brokers providing these services. The CMA also sets margin and leverage requirements and imposes investor protection standards. Open Forex markets are not allowed within the Kingdom, and currency exchange operations are limited to licensed banks and exchange companies. Trading in cryptocurrencies is officially prohibited, while traditional hedging tools such as futures contracts and international investment funds are encouraged. Thus, monetary and regulatory policies ensure the stability of the financial market and protect participants from sharp fluctuations or irregular practices.

Recent statistics indicate significant expansion in the Saudi financial market and increased investor interest in foreign currency transactions. By August 2025, the total market capitalization of the Tadawul exchange reached 8.87 trillion Saudi riyals, with an average daily liquidity of approximately 4.34 billion riyals. The number of individual investors is estimated at around 6.9 million, with the number of active investment portfolios at 13.9 million. The ownership of qualified foreign investors reached 323.9 billion riyals, while Saudi investments in US stocks recorded 193.4 billion riyals in the second quarter of 2025. Regarding investor hedging, gold purchases amounted to 4.4 tons in the first quarter of 2025. These figures highlight the openness to international financial instruments despite the stability of the riyal, reflecting individuals' desire to protect their assets from fluctuations in global currencies through gold or dollar investments.

Most currency exchange operations in Saudi Arabia occur through commercial banks and exchange companies licensed by SAMA. Major banks such as Al Rajhi Bank, National Commercial Bank, Riyad Bank, and SABB provide services for buying and selling foreign currencies, international transfers, and hedging services for companies. Some banks offer forward contracts for exporting or importing companies to neutralize the impact of exchange rate fluctuations. Exchange companies, such as Alinma National and International Trading, serve individuals and expatriates in cash currency exchanges and external transfers. These companies compete to offer attractive exchange rates and quick transaction execution. In recent years, licensed brokerage firms have emerged, providing electronic trading platforms for CFDs on currencies, but they are subject to strict oversight by the CMA to ensure transparency and protect investors.

Despite the stability of the Saudi riyal, investors and companies dealing with global markets need tools to hedge against fluctuations in foreign currencies. These tools include forward contracts that allow fixing the exchange rate for future transactions, and CFDs that enable benefiting from currency price differentials without actually owning them. Hedging is primarily used by import and export companies, or investors holding assets or liabilities in foreign currencies. Some investment portfolios also diversify assets among different currencies or invest in gold as a safe haven during periods of global volatility. The CMA imposes strict controls on the use of leverage and margin to reduce risks associated with these tools, requiring brokers to provide clear disclosures and protect clients from excessive risks.

Currency changes affect the Saudi economy and companies indirectly, despite the stability of the riyal's exchange rate against the dollar. When the value of the dollar rises against other currencies, the cost of imports from countries whose currencies weaken against the dollar increases, which may affect the prices of local goods and services. Conversely, companies exporting their products abroad benefit from the stability of the local currency, as it facilitates financial planning and competitive pricing. For listed companies, the effects of currency changes appear in their financial statements, especially when translating foreign assets or revenues into riyals. Moreover, international investments for individuals and companies are affected by currency fluctuations, prompting them to hedge or diversify their investment portfolios. Therefore, understanding the dynamics of currency changes remains essential in financial and investment planning.

In Saudi Arabia, a range of investment products linked to foreign currencies is available, despite the absence of an open Forex market. Among these products are CFDs on major currency pairs, offered by licensed brokerage firms. There are also investment funds and exchange-traded funds (ETFs) that hold foreign currency assets or hedges, in addition to direct investment in international stocks and bonds. Some investors tend to buy gold as a hedging tool against currency fluctuations, especially during periods of global uncertainty. Investors should familiarize themselves with the CMA regulations and ensure they deal with licensed brokers, understanding the risks associated with these products, particularly regarding leverage and sharp fluctuations.

The currency exchange sector in Saudi Arabia includes several key players, primarily major commercial banks such as Al Rajhi Bank, National Commercial Bank, Riyad Bank, and SABB, which offer a wide range of currency exchange and international transfer services. Licensed exchange companies such as Alinma National and Gulf Exchange compete to provide attractive exchange rates and fast transfer services for individuals and expatriates. In the electronic trading field, international brokerage platforms that have obtained local licenses to offer CFD services on currencies are also competing. Additionally, investment alternatives such as investing in gold, international funds, and dollar-denominated bonds are emerging. Competition in this sector is characterized by service quality, execution speed, and reliability, with all players committed to strict regulatory standards to protect clients.

Saudi Arabia has witnessed significant growth in fintech companies offering money transfer solutions, international payments, and currency exchange services through advanced electronic applications. These platforms enable individuals and companies to make instant transfers, compare exchange rates, and easily track their financial transactions. Modern technologies such as artificial intelligence and data analytics contribute to enhancing transaction oversight, combating money laundering, and ensuring cybersecurity. The CMA and SAMA have announced their support for developing the fintech sector, committing to issuing necessary licenses and establishing regulations that ensure consumer protection. These innovations are expected to continue facilitating currency exchange operations and increasing competitiveness in the market.

During 2024 and 2025, the Kingdom continued its policy of pegging the riyal to the dollar, while enhancing foreign reserves to ensure monetary stability. The CMA issued periodic updates to trading regulations, including increased awareness campaigns regarding the risks of currency trading and derivative instruments, and developed disclosure standards for brokers. The market also witnessed enhanced cooperation with Gulf central banks on joint digital currency projects, such as the 'Abar' project. New technologies in combating financial crimes and ensuring transparency in international transfers were also adopted. Regulatory authorities closely monitor global developments in the currency market to ensure the local market's readiness for any potential changes.

Saudi Arabia holds substantial foreign currency reserves, exceeding $450 billion in mid-2024, according to SAMA reports. These reserves are used to support the policy of pegging the riyal to the dollar and to enhance confidence in the national economy. Thanks to these reserves, SAMA can intervene in the market when necessary to maintain currency stability and protect the economy from global fluctuations. This policy also grants companies and investors the ability to plan long-term without significant concern over exchange rate changes. The stability of the Saudi riyal is one of the pillars of the Kingdom's Vision 2030 to attract foreign investments and enhance the position of the Saudi financial market globally.

The currency market in Saudi Arabia is indirectly affected by global events such as changes in US interest rates, geopolitical conflicts, and fluctuations in oil prices. When the dollar rises globally due to interest rate hikes or political tensions, the demand for the US currency increases, impacting import costs and local commodity prices. Major economic events, such as financial crises or energy price fluctuations, also affect foreign investment flows and international transfer movements. SAMA's precautionary policies and the availability of foreign reserves are crucial factors in protecting the local economy from the effects of these fluctuations, while closely monitoring global developments.

The CMA and SAMA place significant importance on educating investors about the risks of currency trading and derivative instruments. Regulatory authorities have launched educational campaigns and webinars to explain currency change concepts, hedging tools, and leverage risks. Regulations impose clear disclosures on brokers, requiring them to provide comprehensive information about investment products. These efforts aim to protect investors from falling into traps set by unlicensed brokers or taking on uncalculated risks. It is emphasized that consulting a licensed financial advisor is essential before making any investment decision related to currency trading or derivative instruments.