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ECON: 1311, section 203
(Assignment 2: MONETARY POLICY in Saudi Arabia)
Submitted to:
Dr. Mahmood Hamad
By:
Noura AlDawood
ID: 201100186
On
18th of December
Fall 2012
1. SAMA, its managements, and its functions.
The Saudi Arabian Monetary Agency, (SAMA) Aka the central bank of the
Kingdom of Saudi Arabia began practicing its business in the city of Jeddah on
14/1/1372H (04/10/1952) in the Era of the founder, king Abdulaziz A.AlSaud.

SAMA:
The first Saudi currency law was issued in 1346H (1928) with the name of the
Hejazi– Najdi Currency Law. The Arabian Riyal was mainly inspired by the Ottoman
Majidi silver Riyal in its size, weight and finess. In the 1930’s, the government
decided to mint a new silver Riyal in the name of the Kingdom of Saudi Arabia
combined, but with the size, weight and finess of the Indian silver rupee. After that
and due to the crucial need to have a stable economic center, SAMA was established
and given the authority of controlling the banking and monetary fields in the region,
SAMA kept on emphasizing it work through the years by issuing many royal decrees
that led to opening many branches in the main cities of Saudi Arabia, and launching
important banking systems and networks such as SADAD and SPAN.
o FYI: SAMA in recent times is totally an independent autonomous
governmental agency.
 SAMA’s management:
The very first governor for SAMA was Mr. George A. Bowlers (who’s a US
citizen). Nowadays, the whole management committee of SAMA is consisting of
Saudi members. The committee is divided into; a governor (Current: Dr. Fahad
AlMubarak), a vice governor (Current: Dr. Abdulrahman AlHamidy), Deputy
Governor For Administration and
Finance (Current: Ibrahim AlNassar), a
Deputy Governor For Technical Affairs (Current: Dr. Abdulrahman Alkalaf).
o Board of director (Governor, Vice Governor), (ex-officio Chairman of the
Board. ex-officio member, vice chairman whom are three nominated nongovernmental employed members).
o The term of appointment for the governor and vice-governor is four years
maximum, and only extendable be a royal decree. The term for other
members are five years, and it’s also only extendable by a royal decree.
 SAMA functions:
Issues the Saudi Riyal, works as a banker for the government, Supervises
commercial banks, controls Kingdom’s foreign exchange assets, Conducts monetary
policy for promoting prices and trade rate stability, Promotes the growth/inflation
and ensures the reliability of the financial system overall.
2. Implementation.
Implementation (taking from the word; employing/ to employ something) employing a
virtual well-designed-structure model to real world. A smart/strategic implementation
occurs when a procedure is going smoothly and correctly. A macroeconomic
example of implementation is; Malaysia government’s successful experience with
terrorism started with determining specific places and islands to embrace at the
beginning, and at which cost and way. As well as, SAMA’s implementation
experience.
3. Banking system in Saudi Arabia.
Saudi Arabian banking system is considered one of the most stable systems in the
world* and also an upcoming leader at the Islamic banking field.
*(One ex: on March 2011 FSF agreed to give Saudi Arabia a membership at IMF for financial
satiability board, in addition to the remaining members of G20 countries.)
The first bank in Saudi Arabia was a foreign one that was established in Jiddah in 1926,
but its importance was slight. In the 1950’s, after SAMA’s establishment and the oil boom,
bank branches and new entire bank institutions were increasing rapidly and still do till this
very moment. Nowadays, the outlook for Saudi Arabia's banking system remains secure,
says Moody's Investors Service in a new Banking System point of view about KSA; The
key drivers of the outlook are 1) a compassionate operating environment; 2) low problem
loan levels; 3) strong loss-absorption capacity , underpinned by high capital shields and firm
profitability; and 4) the sector's stable, low-cost deposit stand and more than enough
liquidity.
o FYI: examples of the most famous Saudi banks: AlRajhi (knowen to be
generally Islamic), Saudi French bank, Saudi German bank, SABB, Albilad
Bank, AlRyiadh bank, AlJazira bank, National Commercial Bank, and the
Saudi American bank.
4. Money functions.
Money world widely serves as a medium of trade, as a store of value , and as a
unit of account.
(May 20, 2007-peresent):
Saudi Coins
5, 10, 25, 50, 100
halala
Saudi cash
Banknotes
1, 5, 10, 50, 100,
200, 500 riyal
o FYI:
(Although the-hallala coin is officially issued by SAMA, it’s very rarely seen.
supermarkets currently tend to give the customer a “gum” instead of returning the half riyal
left, and that is what made the local campaign “We want our halves turned!” launched last
month through social medias (October 2012) use “Gum is the new coin” as a sarcastic
statement.)
5. Exchange rates and factors dose influence the Exchange rate.


Exchange rates; is generally defined as the rate at which one currency may be
converted into another currency.
Factors dose influence the Exchange rate:
 Firstly, Inflation
A low rate of inflation, implies that costs of services/goods in one country are increasing at
a comparatively slow speed. These services and goods then appear cheaper in the eyes of
foreigners, who increase the demand. If the law of purchasing power equality holds, the
nation’s currency should value to make up for the relative decrease in prices.
(Further details about Saudi Arabia inflation are found in the upcoming page, P.6)
 Secondly, Interest Rates
The association between a nation’s interest and exchange rates, is easy to grab! We, In order
to invest in, or lend to another country must firstly obtain that nation’s currency. This
increases demand for the currency of this nation, and causes it to appreciate in value.
 Thirdly, Current-Account/Trade Balance
When a country runs a current account insufficiency, it classically means that the nation
imports more than it exports. This tends to bias the exchange rate in favor of the country that
runs a trade extra, as foreign demand for its currency must be comparatively high. In due
course, the exchange rate might adjust so to make the first country’s products affordable to
foreigners, and link the gap between the imports and exports.
 Fourthly, Public (government) debt
Basically, a government borrowing to finance deficit spending, increases inflation. If lenders
believe that there is any risk of the accuracy of failing to pay, they may sell the debt
employing downward pressure on the exchange rate .
 Fifthly, Economic and Political Factors
Most investors are risk-averse; therefore, they will not invest their capital unless there is a
certain degree of predictability. They tend to evade investing in countries that are
demonstrated by governmental instability. A nation whose government and economy are
strongly stable will defiantly attract the most investors. This, in return, creates demand for
that nation’s currency and causes its currency to appreciate in value.
6. Relationship between the dollar & Saudi riyal.
“There are a few steps Riyadh could take to ease the pain of a slumping dollar, the
simplest and for some analysts the most likely would be to revalue the currency.” –
(Peter Kenyon, unknown timing).
Since Saudi Arabia has an oil based economy, it’s influences on the world
economy as a whole, as well as influencing on currencies which are a main parts of
the financial system, including such a strong legal tender like the Dollar.
o FYI: The average exchange rate of the US Dollar is 3.75 SR’s.
7. Inflation in Saudi Arabia.
The inflation in Saudi Arabia was very low during the 1980’s and 1990’s; however, it has
started growing since 2003, which is consistent with the fact that Saudi economy is very
unlock and most supplies are imported from outer countries. The increase in world prices
and the fall of the Dollar are found to be vital determinants of the inflation rate in either
short and long run. In addition to the increase in domestic demand, which has caused by the
increasing of oil prices.
Stated by the national commercial bank, Saudi Arabia’s annual inflation growth is 4.8
percent this year, and was 4.5 in the prior year. On another point of view, SAMA stated that
the inflation rate percentage at the year of 2012, is 3.90.
Examples of firms inflations happened in Saudi Arabia at the last decade: Almarae’e dairy
company prices rising. As well as, the chicken and eggs recent prices rising (2012).
o FYI: Inflation is bad because it’s the spine of financial problems at any
nation’s economy. It causes and reasons are uncountable, and only a goodmanaged government can controls the inflation rate in its financial system.
 References:
-Journals/Books:
1-Ford, N. (2007). SAUDI BANKING. Middle East, (376), 48-50
2- Eichengreen, Barry J (2009). IMF Working Papers : Out of the Box Thoughts about the
International Financial Architecture. Washington, DC, USA: International Monetary Fund
3- ALDAMMAS, A., & AL-MUDIMIGH, A. S. (2011). CRITICAL SUCCESS AND
FAILURE FACTORS OF ERP IMPLEMENTATIONS: TWO CASES FROM KINGDOM
OF SAUDI ARABIA. Journal Of Theoretical & Applied Information Technology, 28(2),
73-82.
-Websites:
http://www.sama.gov.sa/sites/samaen/Pages/Home.aspx
http://countrystudies.us/saudi-arabia/44.htm
http://www.richmondfed.org/publications/research/economic_quarterly/2008/summer/pdf/ennis
.pdf
http://www.richmondfed.org/publications/research/economic_quarterly/2010/q2/pdf/mehra.pdf
http://en.wikipedia.org/wiki/Saudi_riyal
http://www.wto.org/english/thewto_e/countries_e/saudi_arabia_e.htm
http://www.investopedia.com/articles/basics/04/050704.asp#axzz2FMq5WWtc
http://www.forexblog.org/2005/02/before_you_unde.html
http://www.majalla.com/eng/2011/11/article55227777