01/28/2008, 00.00
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The crisis in the dollar worries Riyadh, which is reconsidering the riyal-dollar peg

Since 1986, the Saudi currency has been pegged to its American counterpart. But the decline in the dollar has caused the worst inflation in 16 years in Saudi Arabia, with serious difficulties for the population. And now the interest rate cuts by the U.S. Federal Reserve are amplifying these negative effects.

Riyadh (AsiaNews/Agencies) - The Saudi finance minister, Ibrahim Al Assaf, and the governor of Saudi Arabia's monetary agency (central bank), Hamad Saud Al Sayyari, will meet on February 10 with the Shura Council, to discuss the pegging of the riyal to the dollar. The loss of value in the U.S. currency is held to be the main cause of steep inflation in Saudi Arabia, which stood at the rate of 6.5% in December, a 16-year record. In 2007, the dollar lost more than 10% against the euro and about 7% against the yuan, causing a rise in prices for goods imported from these countries.

The value of the Saudi currency was fixed in 1986 at 3.75 riyals per dollar, so any fall in the U.S currency has a direct effect on the riyal. Criticism has grown since the recent decisions of the U.S. Federal Reserve to cut interest rates in an effort to stimulate domestic economic growth, because the Saudi central bank has had to follow suit, with further inflationary effects. Everyone expects the United States to cut rates again this week. Another reason why this is a serious problem is that much of the Saudi central bank's currency reserves are in dollars (worth 285 billion dollars as of November 30), and the country has invested a large part of its trade surplus in U.S. shares.

Al Zulfa, a member of the Council, says that the Shura has asked for a discussion about "this dollar peg debate, its repercussion and what the government plans to do about it".

In the Saudi monarchy, the Shura Council has 120 members who are chosen by King Abdullah. It can propose laws and make recommendations, but these are not binding for the government.

The rise in consumer prices is hitting the 25 million Saudis hard, and in December the king provided various forms of assistance, like subsidies for imported rice and milk for children.

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See also
U.S. debt approaches insolvency; Chinese currency reserves at risk
Riyadh announces measures against record inflation of 9.6%
The Emirates are considering a revaluation against the dollar
Chinese inflation, at 8.7%, risks spinning out of control
Yuan continues its rise as China is covered in snow


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