Abstract
This study examined the determinants of the Saudi riyal real effective exchange rate (REER) and the possibility of changing Saudi Arabia’s exchange rate regime from pegged to floating. A regression model was used to investigate the impact of Saudi Arabia’s total reserves, cost of living, money supply, non-oil exports, interbank lending rate, and crude oil production on the REER. The results revealed crude oil production as the only significant determinant: a 10% increase in production will reduce the rate by 1.32%. Although Saudi Arabia is cannot yet change its exchange rate regime, the goals of Vision 2030 are achieved and Saudi Arabia is no longer an oil-dependent economy, a change may be possible.
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