Until the mid-20th century, Sa'udi Arabia had no formal money and banking system. To the degree that money was used, Sa'udis primarily used coins having a metallic content equal to their value (full-bodied coins) for storing value and limited exchange transactions in urban areas. For centuries, foreign coins had served the local inhabitants' monetary needs. Development of banking was inhibited by the Quranic injunction against interest. A few banking functions existed, such as money changers (largely for pilgrims visiting Mecca), who had informal connections with international currency markets. A foreign bank was established in Jeddah in 1926, but its importance was minor. Foreign and domestic banks were formed as oil revenues began to increase. Their business consisted mostly of making short-term loans to finance imports, commercial trading, and businesses catering to pilgrims. Although lending at interest is prohibited by Islamic law, banking has flourished in Sa'udi Arabia as a conduit for the investment of oil money. The Sa'udi Arabian Monetary Agency (SAMA) was established by royal decree in 1952 to maintain the internal and external value of currency. The agency issues notes and coins with 100% cover in gold and convertible foreign exchange and regulates all banks and exchange dealers.
SAMA runs a stock exchange in Sa'udi Arabia, created in 1990 as an over-the-counter market in which the commercial banks buy and sell shares by means of an electronic trading system. Although this system has facilitated easy access to transacting, the market remains relatively illiquid because of the small numbers of issuers and the narrow investor base. There are 76 companies listed on the exchange. The value of traded shares was $22.2 billion in 2001, a turnover ratio of 31.7%. Total market capitalization was just over $73 billion. The new IFCG Sa'udi Index closed up 7.4% in 2001, its fourth year of existence, after surging increases of 49% and 16.3% in 1999 and 2000, respectively. The market is closed to direct foreign investment, but foreigners can buy and trade shares of Sa'udi companies within a closed-end fund listed in the United Kingdom. In 2002 there were 10 commercial banking houses, the largest of which was The National Commercial Bank. Cumulatively, the total size of the bank's balance sheets stood at over SR 110 billion, with operating profits of SR2 billion in 2001. Eight of the ten are joint venture banks. The major foreign partners include Citibank, Arab Bank Ltd., Banque Indosuez, HSBC Holdings, and ABN Amro. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $48.0 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $88.4 billion.