RIYADH,(Reuters) – Saudi Arabia’s largest state bank urged the government to reduce the kingdom’s exposure to the dollar by investing more assets outside the United states and gradually changing the riyal’s peg to the weak U.S. currency.

National Commercial Bank, Saudi Arabia’s biggest by assets, said the world’s largest oil exporter should set up a sovereign wealth fund to invest surplus revenues, now partly managed by the central bank, which has $285 billion in foreign assets.

The bank’s statement, prepared by its chief economist, is the latest sign of pressure on the government to review exchange rate policy for the first time since 1986. The central bank and officials have repeatedly ruled out any policy shift.

“Time has come to reconsider the continued pegging of the Saudi riyal to U.S. dollar, provided that this is done gradually, taking into account the unfavorable impact on official reserves, which are mostly denominated in dollars,” said Said al-Shaikh, National Commercial’s chief economist.

The government should set up a sovereign fund to “increase the returns on investment of most government surpluses, which are currently invested in U.S. Treasury bonds”, Shaikh said.

The kingdom should “diversify government investments across asset types, countries and different currencies…to reduce risks and increase profitability,” he said.

Concerns that state investors, including those in Gulf oil exporters would shift assets away from the dollar helped drive the U.S. unit to record lows on global markets last year.

Saudi Arabia’s neighbours are reducing dollar exposure.

Qatar’s $60 billion sovereign fund cut its exposure to the dollar by more than half over the last two years, the country’s prime minister said last year.

The Kuwait Investment Authority said it had doubled its asset allocation for Asia to more than 20 percent of its portfolio and the United Arab Emirates bank is planning to shift more reserves into euros.

Saudi reserves are invested by the central bank and other state funds.

“The continuing weakness of the dollar and declining interest rates would shrink returns achieved by these investments,” Shaikh said. “With the continuing rise of inflation rates, the real returns may become less and even risk dwindling.”

The dollar peg forces the Saudi central bank to track U.S. monetary policy. The Federal Reserve is cutting interest rates and inflation in the kingdom hit its highest in at least 12 years in October.

The U.S. dollar fell more than 10 percent against the euro last year and more than 6 percent against the yen, driving up the cost of Saudi imports from those countries and fuelling inflation.

Saudi officials including the finance minister and the central bank governor have said they see the peg as a cornerstone of economic stability. The central bank has held riyal’s exchange steady at 3.75 to the dollar since 1986.

The kingdom is under growing pressure at home and abroad to change its position.

The United Arab Emirates, one of five Gulf countries preparing with Saudi Arabia for monetary union, called in November for the region’s central banks to sever their dollar pegs as Kuwait did in May.

Last week, King Abdullah told economic planning authorities that economic growth must go hand in hand with efforts to protect the population’s purchasing power.

A source familiar with Saudi currency policy told Reuters in November that the kingdom could consider revaluing the currency but keep the riyal pegged to the U.S. dollar.