By ABDEL AZIZ ALUWAISHEG ARAB NEWS
Published: Jan 22, 2012 04:57 Updated: Jan 22, 2012 04:57
Over the past few years, Saudi Arabia has accrued significant budget surpluses resulting from increased oil production and higher oil prices. Some of those surpluses have been used as foreign reserves of the Saudi Arabian Monetary Agency (SAMA).
With new leadership at the helm of SAMA, it may be time to revisit the rather costly policy of maintaining high levels of reserves. We should explore options to manage those surpluses, now that they have grown way beyond the strict needs of monetary policy.
By the end of 2011, SAMA’s foreign reserves exceeded SR2 trillion, or $533 billion, a historical record. Although by absolute value China and Japan have greater foreign reserves, SAMA’s reserves are the highest as a percentage of GDP, exceeding 90 percent.
Usually, foreign exchange reserves are used by central banks to support monetary policy, to provide short-term currency stabilization and manage liquidity. Because foreign reserves are essentially used for these purposes, they are usually kept in actual banknotes, or in short-term, low-yield instruments, to minimize risks and maximize liquidity.
However, SAMA has accumulated reserves beyond such needs. A safe level is often determined as an amount that could cover the value of imports for three to four months. In Saudi Arabia, that would be in the range of $25 million to $35 million. By contrast, our actual reserves could cover 65 months of imports, or about 20 times the required level.
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Categories: Asia, Saudi Arabia
If Saudi Arabia would have followed Col. Ghaddafi’s suggestion of the ‘Gold Dinar’ its reserves would now be several times more valuable. And with these kind of reserve the ‘Gold Dinar’ could definitely have been launched.