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Volume :17 Issue : 1 1989      Add To Cart                                                                    Download

Exchange Rates in an Oil-Based Developing Economy: The Saudi Riyal Experience

Auther : Majid A. Moneef

The purpose of this paper is to analyze the economic and structural constraints affecting the choice of an exchange rate system for an open economy highly dependent on oil as the main export commodity. The advantages and disadvantages of pegging to a single currency or a basket of currencies are evaluated.

The experience of the Saudi Riyal since its peg to the SDRs in 1975 and the subsequent changes in the peg and the close association between the Riyal and the U.S. Dollar are discussed. The paper analyzes the applicability of the conventional theory on exchange rate to Saudi Riyal. It is argued that while the changes in the exchanges rate of the Riyal  vis-à-vis  other  currencies do not affect directly the international terms of trade and the external balance of the Kingdom, they have a direct effect on the government’s budgetary revenues and the domestic terms of trade. Consequently, such changes would  affect the development programmers and the course of diversification.

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