An investigation on the exchange rate regime of Saudi Arabia and its impact on the economy

Helmi Mohammed Salah
2019 Zenodo  
INTRODUCTION: Exchange rate is one of the most effective instruments in the macroeconomic policies. It defines the Price for which the currency of a country can be exchanged for another country's currency (Nayera Y. Solieman, 2018). Furthermore, exchange rate can be a Flexible exchange rate or a fixed exchange rate. Flexible exchange rate is determined by the foreign exchange market, or forex. It is decided by the mechanism of the market and the demand and supply. While in the fixed exchange
more » ... e fixed exchange rate systems, the country makes sure that its value against the dollar, or other important currencies, remain the same. It buys and sells large quantities of its currency, and the other currency, to maintain that fixed value. Worth to mention, that The IMF member countries are free to adopt the exchange system they deem appropriate and based on the second amendment to the Articles of the IFAD Agreement. This agreement was ratified following the collapse of the Bretton Woods (1973) system (CVCE, 2016). However, most of the industrialized countries have abandoned the fixed-exchange system and appreciated their currencies, while developing countries have kept the fixed peg of their currencies either to the currency of a strong industrial country (such as the US dollar) or to a basket of currencies. Now in details, in the fixed exchange systems rate, the local currency is pegged by law or by fixed rate to the currency of another country or a basket of currencies of the country principal trading partners or financiers. In these systems, the local currency is linked by law or by fixed rate to the currency of another country or a basket of currencies of its principal trading partners or financiers. However, there is room for deviation from this central fixed rate in order to rebalance the trade balance, where the exchange rate is allowed to move within a range of less than ± 1% around the central exchange rate. The choice of exchange rate regime and its impact on economic performance is probably one of the most cont [...]
doi:10.5281/zenodo.3542320 fatcat:rcildgbvuvgfhepp5g7gkiuxhu