Saudi Arabia Devalues Its Riyal Against U.S. Dollar
Saudi Arabia devalued its currency by 1.1% on Monday, its third reduction in the official exchange rate of the riyal against the U.S. dollar this year, and bankers tied the move to the sagging world oil market.
Under the new rate announced by the Saudi Arabian Monetary Agency, a dollar was valued at 3.65 riyals, against the previous 3.61 riyals. That reduced the riyal to 27.4 cents from 27.7 cents.
The devaluation was the largest shift in the riyal since 1981 and brought it to the lowest level against the dollar since 1973.
The riyal floats against all major currencies but the dollar.
“The devaluation is definitely tied in with oil,” said one banker who spoke only on the condition that he not be identified. “You only have to look at the events of the last two weeks.”
The banker said he was referring to the possibility of a reduction in prices by the Organization of Petroleum Exporting Countries because of a sluggish world market and rising competition from oil producers outside OPEC.
Saudi Arabia recently warned its OPEC colleagues that it no longer would tolerate cheating on the cartel’s price and production quotas.
The banker said that, because oil is sold for dollars, the devaluation would increase the kingdom’s revenue when computed in terms of riyals.