DEFINITION of 'SAR (Saudi Riyal)'

The SAR is the currency abbreviation for the Saudi riyal, the currency of Saudi Arabia. The Saudi riyal is made up of 100 halala or 20 ghirsh, and is often presented with the symbol SR. The Saudi riyal is pegged to the U.S. dollar at about 3.75 SAR.

Because the Riyal is pegged to the U.S. dollar, its only correlation is to the greenback

BREAKING DOWN 'SAR (Saudi Riyal)'

In 1932, Saudi Arabia was created by the combination of the Hejazi Kingdom and the Sultanate of Nejd. After its creation, Saudi Arabia used a bimetallic monetary system based on British gold sovereigns and silver riyals. In 1952, the monetary system was reformed to use a single currency. This currency, the Saudi riyal, was backed by Saudi gold guineas equivalent to the British gold sovereign until 1959 when a system based on fiat money issued by the Saudi Arabian Monetary Agency was created.

The Riyal briefly rose to a 20-year high in 2007 when the U.S. The Federal Reserve slashed interest rates in the wake of the Great Recession and the Saudi Arabian Monetary Authority (SAMA) chose not to follow for fear of hyper inflation. However, after a few months, the Riyal returned to its pegged rate of 3.75 SAR. 

In 2016, there were talks of a potential devaluation of the Riyal. As oil prices plunged, Saudi Arabia was receiving fewer receipts from its oil exports. Because oil is denominated in U.S. dollars, a devaluation would see them receive more Riyal for each barrel sold. However, despite the oil crisis, SAMA refrained from shifting the peg, and ultimately oil prices clawed off their lows to alleviate some of the pricing pressure. 

Saudi Arabia is a member of the Gulf Cooperation Council, and in 2010 their were talks of a single currency for the Gulf region. However, this has yet to eventuate. 

 

 

 

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