Has the Dollar Peg Served the Saudi Economy Well?

Abstract

There are three major objectives of this paper: first, to examine the various exchange rate regimes and arrangements that have emerged over the last 40 years since the collapse of the Bretton Woods Agreement, focusing on the advantages and disadvantages of each, particularly as they relate to inflation and real economic growth, second, to analyze the historical relationship between the Kingdom’s various exchange rate regimes and the performance of its non-oil private sector, and third, to compare Saudi Arabia’s economic performance since 1986 (when the riyal was firmly pegged to the US dollar) with a number of other developed and developing countries that have followed different exchange rate arrangements. The findings of this paper confirm that the dollar peg has served Saudi Arabia well.