The peg of 3.75 riyals to the dollar has “served our economy well” for more than three decades.
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A devaluation of Saudi Arabia's currency could cause such political instability that Riyadh has little choice but to stick to its promise to use vast foreign exchange reserves to defend the riyal's 30-year-old peg to the U.S. dollar.Societe Generale said Thursday it saw at least a 25 percent chance of a near-term devaluation or 40 percent if oil prices stay at current levels throughout 2016 .But in Saudi Arabia's largely dollar-denominated economy breaking the peg would immediately raise the price of goods, hitting living standards. Saudi citizens have so far been mostly insulated from the impact of lower oil prices.The Saudi Arabian Monetary Agency (SAMA), the central bank, has vowed to maintain the peg of 3.75 riyals to the dollar come what may.One-year dollar/riyal forwards -- contracts used by counterparties to lock in a future exchange rate -- were around 550 points Thursday, well down from the record 1000 points earlier this year as some banks and funds hedged against the risk that Rihadh would scrap the peg.
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