October 12, 2008

Saudi Arab may revalue riyal - Report

Reuters reported that Saudi Arabia could consider revaluing the SAR with other Gulf oil producers but has no plans to drop its peg to the sliding dollar to track a currency basket. Any revaluation by Saudi would be very small and designed to keep plans for Gulf monetary union alive.

The report cited a source as saying that “Saudi government could consider revaluing the currency. Until now, it never said that it would review the riyal’s exchange rate, which the central bank has kept stable at 3.75 to the dollar since June 1986. We will take time to revalue. If it were to happen, it will be very small, to realign the Gulf currencies with each other. But it is not going to happen in the short term. The kingdom will not take unilateral steps towards revaluation.”

The United Arab Emirates, the second largest Arab economy after Saudi Arabia, ratcheted up those expectations this week by saying it could unshackle its dirham from the dollar and track a currency basket including the euro as Kuwait did this year.

Mr Nasser Al Suweidi Sultan of UAE said that UAE would only act with Saudi Arabia and other neighbors preparing for monetary union as early as 2010. He added that “We were taken by surprise by this statement. Saudi Arabia will definitely not shift to a basket of currencies. We have never discussed dropping the peg to the dollar, whether at meetings of finance ministers or central bank governors.”