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Saudi Arabia’s Central Bank Just Made A Historic Move

Saudi Arabia has recently overhauled the role of its central bank, for the first time ever, in a move that could mark an acceleration of Crown Prince Mohammed bin Salman’s massive plans to reinvest Saudi oil revenues into diversification projects. 

In November 2020, Saudi Arabia’s King Salman bin Abdulaziz Al-Saud approved the new law for the central bank, under which the authority is now changing its name from the Saudi Arabian Monetary Authority to the Saudi Central Bank, and will directly report to the King.

“The Saudi Central Bank will continue to enjoy financial and administrative independence,” the Kingdom said back then.

According to analysts who spoke to the Financial Times, the first major shake-up of the Saudi banking authority in its 70-year history could shift the balance of power for investing surpluses of petrodollars from the bank to the Kingdom’s sovereign wealth fund, the Public Investment Fund (PIF), which is chaired by the crown prince.

Crown Prince Mohammed bin Salman has grand plans for major investments into diversifying Saudi Arabia’s economy away from dependence on oil revenues. But in order to do so, the Kingdom will use the oil money it is generating, which have crumbled over the past year due to the low oil prices, the collapse in oil demand, and the large production cuts the Saudis are making under the OPEC+ deal.

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“The crown prince wants to accelerate the country’s development away from oil, asap,” a senior banker based in the Gulf told FT. “He is in a hurry and needs supporters where he wants them to invest as fast as he can,” the banker added.

PIF’s program 2021 – 2025 targets to raise the fund’s assets under management to US$1.07 trillion, and invest 21 percent of its assets in new and growth sectors.  

If the Saudi fund reaches the US$1.07 trillion assets by 2025, it would be one of the largest sovereign wealth funds in the world. Currently, Norway’s Government Pension Fund Global, the so-called oil fund, is the biggest sovereign wealth fund in the world, with a total market value of US$1.22 trillion in 2020. PIF had assets under management of around US$400 billion as of the end of 2020.

By Tsvetana Paraskova for Oilprice.com

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