Devaluation of Saudi Arabia’s currency could cause political instability in the country and Riyadh would not have any choice rather than using the vast foreign exchange reserves to defend it against USD.
Experts believe the recent oil price collapse could devalue the currency by about 25 percent and if the oil stays at the same level throughout the year the devaluation could be about 40 percent.
The economy of Saudi Arabia is widely USD-dominated and if the currency devalues it would increase price of goods and this would result with making living standards higher as well as unrest in the country.
As of now the unwritten social contract in the country swaps the obedience and allegiance of citizens to the king for good government services as well as a share in oil wealth.
Riyadh-based economist John Sfakianakis said the devaluation of Saudi’s currency would self-inflict destructive economic plan and this would be catastrophic too.
It is not to forget here the country has a small manufacturing base and the goods imported are mostly dollar-priced. This means a cheaper currency would make people poorer and this would further slow down the economy.
Until now the people there have been insulated mostly by impact of lower oil prices.