Name: Dana Al-Baadi
ID: 200900719
instructor: Mahmod Hamad
In this paper I will give a brief summary on the monetary policies in Saudi
Arabia, as well as slightly explaining the strategy they uphold, and the reason for
choosing that specific strategy.
Money:
We should start by briefly explain what “Money” is, it is one of the means of
payment, or the token people trade in exchange for good and services, it represent
the economy of the county, for it is the essence needed for a high economy.
Money has three basic function; a medium of exchange, which is explained
just above. A unit of account, or in other word it is the unit used for counting prices.
And lastly the store value, which is the value of the good or services in relation to
the money (the price of the good or service)
These days money, or as it is referred to now “fait money” has two forms;
currency and bank deposits. Currency are the notes and coins we use on a daily
bases, and bank deposits and credit unions and such, which are not used daily can
be turned into currency, but should not be referred to as such, not unless you turn
you deposit into money, than it would be called a currency.
There are two measurement of money M1 & M2; M1 consists of all the
currency and deposits held by an individual or an organization, while M2 consists of
M1 plus the rest of the money forms such as saving deposits, which means that M2
is a greater or wider measuring device for the monetary growth.
Monetary policy:
Is when the main authority regarding money (e.g. central bank) decides on
the size and rate of money growth, it effects the interest rate since it can be seen in
actions such as increasing the interest rate, or the amount kept in vaults in banks.
1
Name: Dana Al-Baadi
ID: 200900719
instructor: Mahmod Hamad
Monetary policy in Saudi Arabia:
Since in Saudi Arabia the monetary authority is the government, than by its
acts highly it influences the economy of the country.
Saudi Arabia Monetary Agency (SAMA) carries the task of upholding the
monetary policies in Saudi Arabia.
By the policies of SAMA the first Saudi currency law was issued under the
name of “Hejazi – Najdi currency law” which equaled the Riyal to an Ottmanin silver
Riyal, that which was later changed to an Indian silver ruby. Few years later during
the era of king Abdulaziz, SAMA was established, under two royal decrees, for the
establishing of SAMA and the approval of the charter of the agency.
Under the functions of SAMA is to increase the external and internal value as
well as the strength of the Saudi Riyal, handling the banking affairs as well as to
regulate commercial banks exchange dealers and as of 2003, insurance companies.
SAM uses “exchange rate targeting” which is a monetary policy strategy that
goes for a usually fixed exchange rate with another currency, there are few reasons
why this strategy was chosen by SAMA, one of those reasons is that, the stability of
the SAR / USD is a great influencer for investments in Saudi Arabia.
This makes SAR linked to the USD, which highly influences the economy of
the country as a whole. Since the Saudi economic and trading has seen some of the
hardest times, keeping the USD fixed at 3.7 SAR is one of the biggest reasons the
country hasn’t been through a great phase of depression, which was a close call
multiple times.
The resent inflation problems (mostly on food and housing) has been a
problem that is tough to face, even with the strategy, increasing the consumer’s
2
Name: Dana Al-Baadi
ID: 200900719
instructor: Mahmod Hamad
power of consumption at the time that the demand rate was at its strongest
required SAMA to handle the matter in different ways, to prevent chaos from
occurring.
Conclusion:
Over all the monetary policies in Saudi Arabia might be slow growing, and
might not fix all the economic problems in a speed we would dream of, but the
strategies that the agency upheld promise us of stability and provide a level of
security, the inflation might be at its highest now, but slowing the inflation will in
turn increase the economy as a whole, it might take time but “Rome wasn’t built in a
day”
3
Name: Dana Al-Baadi
ID: 200900719
instructor: Mahmod Hamad
Summary:
Money is a requirement of life in our fast growing world, you need it for
everything, and we need everything, and for that reason a country’s economic
standers depends on it, i.e. how much the individual’s income is and how they
distribute it and use is and…
And so every company has an authority that decides or keep watch on the
growth of the money, and places the roles as well as helps during the times of
depression, these monetary policies are usually the responsibility of the central
bank.
In Saudi Arabia the (SAMA) a.k.a. Saudi Arabia Monetary Agency, was
established for the purpose of seeing through these polices and making sure the
Saudi Riyal stays stable and safe.
4
Name: Dana Al-Baadi
ID: 200900719
instructor: Mahmod Hamad
Bibliography
Al-Hamidy , A. (2011, 10 3). Monetary policy in Saudi Arabia . Retrieved 12 6, 2012,
from Bank International Settlements, org:
http://www.bis.org/publ/bppdf/bispap57v.pdf
Banafe , A., & Al-Jasser , M. (nd). Monetary policy instruments and procedures in Saudi
Arabia. Retrieved 12 6, 2012, from Bank International Settlements, org:
http://www.bis.org/publ/plcy05j.pdf
SAGIA. (nd). Investment climate in Saudi Arabia. Retrieved 12 6, 2012, from Saudi
Arabia General Investment Authority web site :
http://www.sagia.gov.sa/en/Investment-climate/Some-Things-You-Need-ToKnow-/Investment-Incentives/
Samuelson, P. A., & Nordhaus, W. D. (2010). Economics. Asia: McGraw Hill.
SAMA. (nd). About us: SAMA. Retrieved 12 6, 2012, from Saudi Arabian Monetary
Agency web site:
http://www.sama.gov.sa/sites/samaen/AboutSAMA/Pages/Home.aspx
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