Moving Riyal Away From The Dollar
Van Der Galien has the story:
The Telegraph focsues on a very serious threat to the Saudi and US Economy. Saudi Arabia seems poised to re-peg (currently 1 USD = 3.75 Riyal) its currency to avoid inflationary pressure caused by the weakening American Dollar. This move would have serious effects on the United States.
Any change in the Riyal to the Dollar would significantly impact the cost of oil. By increasing the value of the Riyal relative to the value of the dollar, the cost to produce and transport oil within Saudi Arabia would increase (from the US perspective) overnight. Nearly all of the oil traded in the Middle East is done so using the Riyal pegged to the dollar. Naturally when the cost of production increase we can anticipate significant market movement.
The second consequence is that Saudi Arabia, our close friend and ally, holds a significant number of US Bonds and other public and private securities. As the dollar weakens against other international markets, investing in the United States becomes less attractive. The only way to make US Treasuries more attractive is to increase the interest rate, the anthisis of the Fed’s recent decision to cut interest rates to spur the stagnating economy.
-Shlok
Sign up for my newsletter.