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Saudi currency devaluation would carry major political risk
[Dhaka Tribune] A devaluation of Soddy Arabia...a kingdom taking up the bulk of the Arabian peninsula. Its primary economic activity involves exporting oil and soaking Islamic rubes on the annual hajj pilgrimage. The country supports a large number of princes in whatcha might call princely splendor. When the oil runs out the rest of the world is going to kick sand in the Soddy national face... '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 US dollar. Currency traders have been betting against the Saudi peg, and those of other regional oil producers, in the wake of oil's price collapse. Societe Generale last week said it saw at least a 25% chance of a near-term devaluation or 40% 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. Combined with other pending painful economic reforms, this could lead to unrest in a country where the unwritten social contract swaps citizens' obedience and allegiance to the king for good government services and a share in oil wealth. Some diplomats living in Saudi Arabia say privately that a break in the peg is the single biggest political risk facing a country already embroiled in a war in Yemen ...an area of the Arabian Peninsula sometimes mistaken for a country. It is populated by more antagonistic tribes and factions than you can keep track of. Except for a tiny handfull of Jews everthing there is very Islamic... and suffering periodic deadly attacks by myrmidons. The biggest Arab economy has only a small manufacturing base and almost all goods come as dollar-priced imports, so a cheaper riyal would instantly make normal Saudis feel poorer without providing any benefit to the wide economy via cheaper exports. Posted by: Fred 2016-02-10 |
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