Why is the Value of the Russian Ruble So Low and the Saudi Riyal So High?

The value of a currency is influenced by a variety of economic factors, including inflation rates, interest rates, political stability, and overall economic performance. This article will explore the reasons behind the low value of the Russian ruble and the high value of the Saudi riyal, with a breakdown of the individual economic factors at play.

Russian Ruble

Economic Sanctions

Following geopolitical tensions, Russia faced extensive sanctions from Western countries, especially after the 2022 invasion of Ukraine. These sanctions have severely impacted trade, investment, and access to international financial markets. Financial restrictions have led to a decrease in liquidity, making it harder for the ruble to maintain strength.

Inflation

Russia has experienced high inflation rates, eroding the purchasing power of the ruble. Economic instability can lead to a decline in confidence in the currency. This lack of trust often results in capital flight, further weakening the ruble.

Oil Dependency

The Russian economy remains heavily reliant on oil and gas exports. Fluctuations in global oil prices can significantly impact the ruble's value. When energy prices decline, the ruble tends to weaken due to reduced foreign exchange earnings.

Central Bank Policies

The actions of the Central Bank of Russia, including changes in interest rates and interventions in the currency market, also affect the ruble's value. In response to economic pressures, the central bank may struggle to maintain currency stability, leading to further depreciation.

Saudi Riyal

Oil Wealth

Saudi Arabia holds one of the largest reserves of oil in the world. The country's economy is heavily based on oil exports, providing a strong backing for the riyal. High global oil prices often strengthen the riyal, as more foreign currency flows into the country.

Peg to the US Dollar

The Saudi riyal is pegged to the US dollar at a fixed rate. This peg offers stability and predictability in exchange rates, which can boost investor confidence. The fixed rate eliminates uncertainty, making it easier for businesses to plan and invest.

Economic Stability

Saudi Arabia has made significant strides in diversifying its economy through initiatives like Vision 2030. These efforts aim to reduce reliance on oil and promote sectors like tourism and technology, enhancing overall economic resilience. Diversification not only improves the country's economic profile but also strengthens the riyal's position.

Foreign Reserves

Saudi Arabia maintains substantial foreign currency reserves, which support the riyal and provide a buffer against economic shocks. These reserves can be drawn upon to mitigate the impact of oil price fluctuations, maintaining the riyal's strength even during times of global economic turbulence.

Conclusion

In summary, the low value of the Russian ruble is primarily due to economic sanctions, economic instability, and reliance on volatile oil prices. On the other hand, the high value of the Saudi riyal is supported by the country's oil wealth, a stable peg to the US dollar, and ongoing economic diversification efforts. Understanding these factors can provide valuable insights into the global economic landscape and the dynamics of currency values.