What Is the Saudi Riyal (SAR)?
The SAR is the currency abbreviation for the Saudi Riyal, which is the official currency of Saudi Arabia. The Saudi Riyal is made up of 100 halala, and is often presented with the symbol SR.
The Saudi riyal is pegged to the U.S. Dollar at an exchange rate of about 3.75 SR.
- The Saudi Riyal (SR) is the national currency of Saudi Arabia and is managed by the Saudi Central Bank.
- The SAR is made up of 100 halala, and is often presented with the symbol SR.
- The SAR is currently pegged to the U.S. Dollar at about 3.75 SR.
Understanding the Saudi Riyal
In 1932, the Kingdom of Saudi Arabia, as a country, was formed by combining the Kingdom of Hejaz and the Sultanate of Nejd. After its creation, Saudi Arabia utilized 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, which is the Saudi Central Bank.
The Riyal briefly rose to a 20-year high in 2007 when the U.S. Federal Reserve slashed interest rates in the wake of the Great Recession and the Saudi Central Bank chose not to follow for fear of hyperinflation. However, after a few months, the Riyal returned to its pegged rate of 3.75 SAR. Because the Riyal is pegged to the U.S. dollar, its only correlation is to the "greenback."
Saudi Arabia's Economy
Saudi Arabia's economy is driven largely by its oil and gas industry. Saudi Arabia produces almost 12 million barrels of oil per day and nearly 12% of world output. The country ranked as the largest oil producer in the decade from 2003 to 2012, after which it fell to second place due to surging oil production in the United States. Saudi Arabia remains the world's largest petroleum exporter. With proven oil reserves of about 337 billion barrels and relatively low production costs, Saudi Arabia should maintain its position as a top-three oil producer for the foreseeable future.
Saudi Arabia's oil and gas industry is controlled by Saudi Aramco, which is controlled by Saudi Arabia's Ministry of Petroleum and Mineral Resources and the Supreme Council for Petroleum and Minerals. Saudi Aramco is mostly state-owned, but had an initial public offering (IPO) of 1.5% of the company in Dec. 2019. Meanwhile, although international oil companies do not participate in oil production in Saudi Arabia, several partners with Saudi Aramco in joint-venture refineries and petrochemical plants in the country—partners include Exxon Mobil, Royal Dutch Shell PLC, Sumitomo Chemical Co., and Total S.A.
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 rebounded off their lows to alleviate some of the pricing pressure.
Saudi Arabia is a member of the Gulf Cooperation Council, and in 2010 there were talks of a single currency for the Gulf region. This has yet to come to fruition, although the topic has come up periodically in the region since.