Numerous news sources including FT.com and Gulf News are reporting that Saudi Arabia’s government is investigating several of the country’s banks, for creating structured products which allow traders to speculate on the possible end of the currency’s US Dollar peg.
Several leading international hedge funds, including Bill Ackman’s Pershing Square Capital and PointState Capital are reported to have made large bets that the Saudi Arabia Riyal’s peg to the USD will be broken, as low oil prices have led to a prolonged Revenue plunge for the Kingdom. Saudi officials continue to maintain that the country has no plans to devalue, and a number of leading political analysts say such a move would be a last resort.
PointState in particular has a strong track record with oil and energy related bets. PointState’s CEO Zach Schreiber, became well known for a speech he gave touting the coming drop in oil prices when WTI crude traded at about $100 in mid 2014, seeing his predictions come true and his PointState making more than a billion dollars on the trade.
The Saudi Arabia Monetary Agency (SAMA), the country’s financial regulator, has apparently asked a number of the country’s leading lenders to explain why they are offering Dollar-Riyal forward structured products to customers, less than four months after SAMA banned options contracts that let speculators place wagers on a currency devaluation.
Saudi Arabia’s oil price driven crisis has seen the country’s budget deficit widening out to 19% of GDP, causing a collapse in government spending which has slowed economic growth to near zero.
A devaluing of the Riyal would increase oil revenues in Riyal terms and provide more domestic revenues for the government, but would make imports a lot more expensive for Saudis.