The malls are full, the cars are fast, and the fashions are sharp as Saudis enjoy the benefits of oil at almost $100 a barrel, but a plunging dollar could force Saudi Arabia into revaluing its riyal, say analysts.

The capital Riyadh is a boom town where even a stock market crash last year and a spike in inflation over recent months have failed to halt conspicuous consumption.
Ever since oil moved from a base of $10 a barrel in the late 1990s to nearly $100 this month, the kingdom has seen a turnaround in its economic fortunes and a return to some of the profligate spending that characterised the 1970s and 80s.
Every day newspapers carry announcements of new projects costing billions of riyals, a currency whose strength is masked by its tight peg to the US dollar.
The Riyadh Development Authority has been set up to oversee plans to develop a financial centre, technology park and underground metro system.
“You can see this boom, and the numbers reflect it,” said economist Ihsan Bu-Hulaiga.
“The Saudi economy will grow by more than four per cent this year and private sector growth is around seven per cent.”
Saudi Arabia has by far the largest Arab economy, dwarfing countries such as Egypt, which has a population of over 70 million compared to Saudi Arabia’s 24 million. The economic turnaround has helped Saudi Arabia reestablish itself after the September 11 attacks on US cities in 2001.
A stream of foreign leaders have visited Riyadh since King Abdullah took the throne in 2005, as Saudi Arabia forges political and economic links with China, India and Russia, expanding on traditional close ties with London and Washington.
As the economy expands, pressure for exchange rate reform is also growing.
With oil priced in dollars, the US currency’s slide is eroding export revenues – a concern raised by Venezuela and Iran at the Opec meeting in Riyadh.
A source said recently that Saudi Arabia could consider revaluing the riyal with other Gulf oil producers, but has no plans to drop its peg to the tumbling dollar to track a currency basket.
The kingdom set its exchange rate in 1986 and has never said it is reviewing that policy, even though the dollar’s slide has forced Gulf neighbours and other Opec oil exporters to question the wisdom of tying their economies to the US currency.
Any revaluation by the world’s biggest oil exporter would be “very small” and designed to keep plans for Gulf monetary union alive, the source said, communicating the Saudi response to growing market expectations of a Gulf exchange-rate shift.
“Saudi Arabia will definitely not shift to a basket of currencies,” the source said. “We have never discussed dropping the peg to the dollar, whether at meetings of finance ministers or central bank governors.”
An end to the Saudi peg could weigh on the dollar, which hit a 26-year low against sterling, an 18-month trough against the yen and a record low against the euro this month on concerns about slowing US economic growth after a mortgage crisis.
In September, the US currency hit a low of $1.40 against the euro on speculation Saudi Arabia would scrap its peg, potentially reducing demand for US assets in a region with a $1 trillion in surplus funds.
The Saudi government could consider revaluing the currency, which the central bank has kept stable at 3.75 to the dollar since June 1986, the source said.
“We will take time to revalue. If it were to happen, it will be very small, to realign the Gulf currencies with each other,” the source said.
“But it’s not going to happen in the short-term. The kingdom will not take unilateral steps towards revaluation,” the source added
Qatar, Bahrain, the UAE and Saudi Arabia could shift together to a common fixed exchange rate against the dollar to “facilitate monetary union”, the source said.