Dollar peg to stay with oil dependency

Dollar peg to stay with oil dependency

By KHALIL HANWARE | ARAB NEWS

Published: Apr 26, 2011 00:15 Updated: Apr 26, 2011 14:53


Saudi Arabian Monetary Agency Gov. Muhammad Al-Jasser.

JEDDAH: Saudi Arabia will keep pegging its riyal currency to the US dollar as long as its economy will remain heavily reliant on oil, Saudi Arabian Monetary Agency (SAMA) Gov. Muhammad Al-Jasser said on Monday.

Asked whether the greenback link is to stay forever, Reuters quoted Al-Jasser as saying at a university event in Jeddah: “Nothing is forever in the economy, if the circumstances change, for example if oil becomes 10 or 15 percent of the economy and we have an agriculture, industry and services-based economy, … then there must be a change in the outlook.”

“But as long as the economy is highly dependent on one product, which is oil, then the dollar remains,” he said.

Al-Jasser was speaking at a ceremony in Effat University to mark the establishment of a deanship for higher studies and scientific research.

Saudi Arabia pegs its riyal currency to the US dollar based on pure economic interests and government plans to build more housing should reduce inflationary pressures in the future, he added.

“It is noteworthy to point out that the decision to peg the exchange rate of the riyal to the dollar is based on pure economic interests. That is due to the pricing of oil in the dollar and because most of our imports are in dollars,” Al-Jasser said. “It is expected that the king’s orders to increase housing supply will decrease some of the inflationary pressures resulting from rents in the future,” he added.

“Given the current export dynamics of the Saudi economy and its dependence on oil exports as the single most important source of revenue, the logic of revaluing is simply illogical at this point. A revaluation today would lead to an unnecessary loss of revenue when those dollar revenues are converted to riyals. It does not make any sense to revalue today and to devalue a bit later,” John Sfakianakis, chief economist at Banque Saudi Fransi, said.

“_Saudi _Arabia’s currency history is known for its continuity and stabilit

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