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Commodity export dependence and the choice of exchange rate regime: Viewing the poles from Saudi Arabia

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  • N. Taher
  • M. Salisu
  • P. N. Snowden

Abstract

As financial crises followed capital account opening in the 1990s the hard peg of a currency board regime was seen as the remaining 'polar' alternative to flexible exchange rates. With the Argentine peso devaluation of early 2002 suggesting that the fundamental requirement may be peg abandonment through either floating or 'dollarisation', the issue as it confronts highly open LDSs reliant on a narrow export base of primary commodities has been substantially neglected. Under pressure to increase financial openness, and with exchange rate variability posing a threat to their price level stability, the study asks whether pegging could remain an effective choice for such economies. Saudi Arabia has combined extreme commodity dependence with financial openness under a rigid peg and her experience is examined for the wider lessons it may contain. While sensitive to fluctuating confidence in the exchange rate evidence on demand for the Riyal suggests that, with appropriate policy support, currency pegs remain appropriate for commodity-dependent economies.

Suggested Citation

  • N. Taher & M. Salisu & P. N. Snowden, 2003. "Commodity export dependence and the choice of exchange rate regime: Viewing the poles from Saudi Arabia," Journal of Development Studies, Taylor & Francis Journals, vol. 40(1), pages 164-179.
    • Handle: RePEc:taf:jdevst:v:40:y:2003:i:1:p:164-179
    DOI: 10.1080/00220380412331293717
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