The US dollar is one of the most frequently discussed terms when talking about the global economy, particularly in the Kingdom of Saudi Arabia. The US dollar, symbolized as USD, is the primary currency in most international transactions and holds a firm place in Saudi monetary policies. Since the 1980s, the Saudi riyal has been pegged to the dollar through a fixed exchange rate system, creating a stable financial environment protected from severe global currency fluctuations. This peg is not just a financial policy; it is a strategic factor influencing oil revenues, price stability, and foreign investment attractiveness.
In recent years, with the riyal continuing to be pegged to the dollar at a rate of 3.75 riyals per dollar, the Saudi financial market has experienced notable monetary stability. This effect becomes more pronounced with changes in oil prices, movements in US monetary policy, and the substantial foreign reserves held by the Kingdom in dollars. In this article, we explore the role of the US dollar in the Saudi economy, its impact on various sectors, related monetary policies, and review the latest economic and financial indicators. We also discuss frequently asked questions about the future of the dollar peg, its effects on listed companies on Tadawul, and the importance of consulting licensed financial advisors before making any financial decisions.
US Dollar: Definition and Position in the Global Economy
The US dollar (USD) represents the official currency of the United States and is the most important global reserve currency. The US dollar is the benchmark for pricing strategic commodities such as oil and gas, and it is used in approximately 60% of global central bank reserves. This status gives the dollar a wide-ranging impact on global economies, including the Saudi economy.
The global financial system is largely built on trust in the dollar, which is reflected in forex trading, foreign reserves, and capital flows. Its importance is evident as it serves as the reference for most currencies and contributes to the stability of economies that peg their currencies to it, as is the case with the Saudi riyal.
History of the Saudi Riyal Peg to the US Dollar
The peg of the Saudi riyal to the US dollar began in the early 1980s. This decision came after periods of instability in global exchange rates and rising volatility in oil prices. The primary goal of the peg was to provide a stable monetary environment that supports financial planning for the government and businesses, reducing the risks of currency fluctuations.
The peg has continued over the past decades, with official Saudi entities, such as the Central Bank (SAMA), repeatedly affirming their commitment to maintaining this system. This reflects confidence in the strength of the dollar and its ability to protect the Saudi economy from external shocks, especially given the significant importance of dollar-denominated oil revenues.
Mechanism of the Fixed Exchange Rate between the Riyal and the Dollar
The Saudi economy relies on a fixed exchange rate system, maintaining the US dollar at 3.75 Saudi riyals. This peg is achieved through interventions by the Saudi central bank in the currency market and the use of foreign reserves to adjust supply and demand for foreign currencies.
This system allows local and international investors to plan with confidence, as it ensures the stability of the riyal's value. It also prevents sudden exchange rate fluctuations that could negatively impact government and corporate budgets and facilitates import and export operations. Notably, any change in US interest rates often directly reflects on Saudi monetary policy.
Reasons and Benefits of Pegging the Saudi Riyal to the Dollar
The Saudi riyal is pegged to the US dollar for several strategic and economic reasons. Firstly, the dollar is the primary currency for pricing oil globally, which is the largest source of Saudi revenues. Secondly, the peg provides monetary stability that reduces inflation risks and enhances confidence in the national economy.
Other benefits include facilitating foreign investment attraction, as investors are assured that the value of their assets will not erode due to currency fluctuations. The peg also gives the government effective tools to control liquidity and reduces the likelihood of speculation on the local currency. Given these advantages, Saudi Arabia continues to affirm its commitment to the peg policy.
Impact of the US Dollar on Oil Revenues and the Saudi Economy
The US dollar plays a pivotal role in determining Saudi revenues from oil exports. With oil priced in dollars, any change in the dollar's value globally directly reflects on the Kingdom's revenues. If the dollar strengthens against other currencies, global demand for oil may decrease, while a strong dollar means increased revenues for the Kingdom denominated in riyals due to the fixed exchange rate.
Additionally, dollar stability contributes to stable cash flows to the Saudi treasury, enhancing the government's ability to plan financially and execute development projects. For this reason, monitoring dollar movements remains a key factor in shaping Saudi economic policies.
Saudi Foreign Reserves and the Role of the Dollar
The Kingdom of Saudi Arabia holds substantial foreign currency reserves, the majority of which are in US dollars. These reserves are estimated at around $450-500 billion according to 2024 estimates, allowing the central bank to intervene quickly when needed to support the riyal or meet external obligations.
Having these reserves in dollars enhances the Saudi economy's ability to withstand external financial crises. It also provides additional confidence to international investors in the stability of the local currency and boosts the Kingdom's credit ratings. In addition to dollars, Saudi Arabia holds part of its reserves in gold and some other currencies.
Saudi Monetary Policy and Its Influence from the US Federal Reserve
Saudi monetary policy is closely linked to movements in US interest rates. Due to the fixed peg between the riyal and the dollar, the Saudi central bank typically follows the US Federal Reserve's decisions in adjusting interest rates. For example, when the Fed lowered interest rates in 2024, the Saudi Monetary Authority made a similar reduction to ensure the stability of the peg.
This mechanism prevents rapid capital flows to and from the Saudi market due to yield differentials and supports the stability of the banking sector. However, Saudi Arabia is keen to consider local economic conditions when making monetary decisions, ensuring that policies align with national interests.
Impact of the US Dollar on the Saudi Stock Market (Tadawul)
Although all stocks in the Saudi financial market (Tadawul) are denominated in Saudi riyals, the US dollar indirectly affects the performance of many companies. This is due to oil and petrochemical companies, such as Aramco and SABIC, primarily relying on dollar-denominated exports.
Any change in the dollar's value or oil prices leads to changes in the profitability of these companies, which directly reflects on their market value in Tadawul. Additionally, dollar stability supports a safer investment environment, while severe fluctuations may exert pressure on the results of some importing or exporting sectors.
Competing Currencies to the Dollar in the Saudi Market
Despite the presence of major currencies such as the euro, Japanese yen, British pound, and Chinese yuan, the US dollar remains the primary currency in Saudi foreign trade transactions. The Kingdom has not adopted any alternative currency for its reserves or to peg its currency to.
Moreover, nearly all Gulf countries peg their currencies to the dollar, reinforcing the dollar's dominance in the region. Gold is used only as a store of value, not as a means of daily pricing or trading. Digital currencies are still under study and do not yet represent a real competitor to the dollar.
International Performance of the US Dollar and Its Reflections on the Saudi Economy
The US dollar has seen a notable rise against a basket of global currencies during 2024-2025, supported by tight US monetary policies and significant political events such as the US elections. This strong performance has reflected on the Saudi economy through capital flows, oil prices, and economic growth rates.
Among the key indicators, inflation in Saudi Arabia has stabilized around 1.7–1.9% and GDP growth reached 1.3% in 2024. The Kingdom has also maintained a high credit rating, which has helped bolster confidence in the local financial system despite global challenges.
Developments in Monetary and Financial Policies in 2024-2025
During 2024-2025, the Saudi central bank continued its commitment to maintaining the fixed exchange rate, influenced by changes in the US Federal Reserve. Interest rates were lowered in mid-2024 to align with Fed trends, with the base deposit rate around 4.75% and the discount rate at 5.25%.
These decisions came in light of the Saudi financial authorities' commitment to maintaining liquidity flow and the stability of the banking system while monitoring the impact of dollar movements on the local economy. So far, there has been no official intention to change the peg system or adopt monetary policies independent of the dollar.
The Relationship Between the US Dollar and Global Oil Prices
The US dollar is the currency used for pricing oil in global markets. This linkage makes oil prices susceptible to fluctuations in the dollar's value against other currencies. When demand for the dollar increases or its value strengthens, oil prices in dollars may decrease, and vice versa.
For Saudi Arabia, any change in global prices translates directly into changes in dollar revenues. With the fixed exchange rate, these revenues quickly convert to Saudi riyals, protecting the government budget from sharp fluctuations. However, changes in global demand and oil prices remain influential factors that require careful monitoring.
Digital Currencies and the Future of the US Dollar in the Kingdom
Saudi Arabia is closely monitoring developments in digital currencies and has already begun studying the possibility of issuing a digital riyal. However, as of 2025, no official digital currency has been adopted within the local financial system, and the US dollar remains the dominant currency in reserves and international pricing.
Any future shift towards digital currencies will require advanced infrastructure and extensive international coordination. Until then, the US dollar will remain the primary reference for Saudi financial policies, especially given the Kingdom's significant reliance on dollar-denominated oil exports.
The Future of the Peg between the Saudi Riyal and the US Dollar
In light of the current economic and political conditions, Saudi officials affirm the continuation of the peg policy between the riyal and the dollar. No official signals or international reports indicate a change in this policy in the near future. This is due to the stability that the peg provides to the Saudi economy, especially given the significant reliance on oil revenues.
However, the Kingdom continues to monitor global developments and diversify its reserves to ensure the flexibility of the financial system. The future of the peg remains contingent on changes in the global economy, but confidence in the dollar and Saudi monetary policy supports the continuation of the current situation.
Conclusion
By examining the impact of the US dollar on the Saudi economy, it is clear that the US dollar occupies a central position in the Kingdom's financial strategy. The fixed peg between the riyal and the dollar has established a strong foundation for monetary stability, shielding the economy from many fluctuations experienced in global markets. This peg has also played a significant role in sustaining oil revenues, enhancing the attractiveness of the local market for foreign investors, and supporting the Kingdom's high credit ratings.
Despite challenges and rapid changes in global monetary policy, Saudi Arabia remains committed to the fixed exchange rate policy and bolstering its foreign reserves in dollars. With the emergence of digital transformations and new financial technologies, the dollar remains at the forefront of currencies influencing the local economy. Before making any financial or investment decisions, it is crucial to consult a licensed financial advisor to ensure that options align with personal goals. The SIGMIX platform provides comprehensive information and analysis to help build a better understanding of the Saudi financial market, but it is always advisable to refer to licensed specialists for informed financial decisions.
Frequently Asked Questions
The official exchange rate of the US dollar against the Saudi riyal is fixed at 3.75 riyals per dollar, according to the Saudi central bank's policy. This rate has been stable for decades, aiming to provide a stable financial environment and protect the riyal from global currency fluctuations. In the local banking market, there may be very slight differences in the parallel market, but they do not affect daily transactions. This peg is one of the pillars of monetary stability in the Kingdom.
The Saudi riyal was pegged to the US dollar to achieve monetary stability and reduce the risks of exchange rate fluctuations. The Saudi economy heavily relies on dollar-denominated oil exports, so the peg provides a means for more accurate financial planning for the government and businesses. It also gives greater confidence to local and foreign investors and helps control inflation rates. Saudi financial authorities continuously affirm their commitment to the peg policy for the strategic advantages it provides.
As of 2025, there have been no official signals regarding an intention to change the peg of the riyal to the dollar or shift to a floating currency system. Sources from the Saudi central bank (SAMA) and government entities confirm that the peg to the dollar will continue, given the economic stability it provides. Any future change in this policy would require comprehensive study and an official announcement, but it is not currently on the table given the current economic circumstances.
Movements in the US dollar affect the Saudi economy through oil revenues, inflation, and import costs. When the dollar strengthens against other currencies, global demand for oil may decrease, impacting the Kingdom's revenues. Additionally, dollar stability helps stabilize local prices and limit inflation. However, if the dollar experiences sharp fluctuations, there may be impacts on some importing or exporting sectors, but the peg system significantly reduces these effects on the local economy.
The Kingdom of Saudi Arabia holds large foreign reserves, estimated between $450 billion and $500 billion by the end of 2024. The majority of these reserves are denominated in US dollars and are used to support the riyal's exchange rate and ensure the stability of the local financial system. The presence of these reserves enhances Saudi Arabia's ability to withstand global financial crises and provides additional confidence to investors and international financial institutions.
Currently, Saudi Arabia does not use any currency other than the US dollar for pricing or selling oil. Oil is priced and sold globally in dollars, making the dollar the reference currency in Saudi oil transactions. There are global discussions about diversifying currencies, but the prevailing international system and financial infrastructure make continued reliance on the dollar the most effective option for the Kingdom in the foreseeable future.
The Saudi stock market is indirectly affected by fluctuations in the US dollar, especially in companies that rely on dollar-denominated exports or revenues such as Aramco and SABIC. An increase or decrease in the dollar may affect the profitability of these companies, and thus their market value in Tadawul. Additionally, changes in US interest rates may reflect on the local banking market, but they do not directly affect the riyal's exchange rate due to the fixed peg system.
Since the Saudi riyal is pegged to the dollar, Saudi monetary policy generally follows changes in US interest rates. When the US Federal Reserve raises or lowers interest rates, the Saudi central bank typically takes a similar step to ensure the stability of the peg. This alignment prevents speculation on the local currency and maintains orderly capital flows while considering local economic conditions when making decisions.
So far, digital currencies or gold do not pose a real competition to the US dollar in the Saudi financial system. The dollar remains the primary currency in the central bank's reserves and international transactions. While gold is considered a store of value, it is not used in daily pricing or trading. Digital currencies are still under study and experimentation, and have not been officially adopted as a means of payment or reserves in the Kingdom as of 2025.
Consulting a licensed financial advisor enables individuals and businesses to make informed financial decisions based on a precise understanding of the market. Dealing with foreign currencies involves various risks and challenges, such as exchange rate fluctuations, changes in monetary policy, and the impact of global economic events. A licensed financial advisor possesses the expertise and knowledge necessary to help investors understand these aspects and evaluate the best options for their financial goals.