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Petrocurrency is a portmanteau neologismused with three distinct meanings, though often confused:
  1. Trading surpluses of oil producing nations, originally called petrodollars
  2. Currencies of oil producing nations which tend to rise in value against other currencies when the price of oil rises (and fall when it falls).
  3. Currencies used as a unit of account to price oil in the international market.


Oil producers' trading surpluses

With the large rise in oil prices in the 1970s, there was concern that the world economy might contract if the oil producers extracted money and failed to recycle it back to oil consumers.

With a similar rise in prices at the start of the 21st century, more of these oil surpluses have been reinvested through sovereign wealth funds. Two early examples were the Kuwait Investment Authority and the Petroleum Fund of Norway.

Currencies correlated with oil prices

The pound sterling has sometimes been regarded as a petrocurrency thanks to North Sea oil exports. The Australian dollar does not fall in this category, since Australia does not export a significant amount of oil.

The Dutch guilder was regarded as a petrocurrency thanks to its large natural gas and North Sea oil exports. This caused the Dutch Guilder to strengthen severely in the 1970s when the OPEC started their price hikes. As a result of this strengthening industrial manufacturing and services were crowded out and became non-competitive on world markets. A phenomenon that is often referred to in economics literature as Dutch disease.

The Canadian dollar is increasingly viewed as a petrocurrency. As the price of oil rises, oil-related export revenues rise, and thus constitute a larger component of Canadian exports. Thus, the movements of the Canadian dollar have become increasingly correlated with the price of oil. For example, the exchange rate of Canadian dollars for Japanese yen (99% of Japan's oil is imported) is 85% correlated with crude prices.

Currencies used to trade oil

Since the agreements of 1971 and 1973, OPEC oil is exclusively quoted in US dollars. This created a permanent demand for dollars on the international exchange markets.As of 2005, OPEC continues to trade in petrodollars, but some OPEC members (such as Iranmarker and Venezuelamarker) have been pushing for a switch to the euro.

Since the beginning of 2003, Iran has required euro in payment of exports toward Asia and Europe, though prices are still expressed in US dollars [68252]. Iran is planning to open an International Oil Bourse (IOB, exchange), on the free trade zone on the island of Kishmarker , for the express purpose of trading oil priced in other currencies, including euros.

On May 10, 2006 Russianmarker president Vladimir Putin announced the project for the creation of an Oil Exchange denominated in rubles to trade oil and gas. The purpose of trading in rubles is to convert it into an international currency which would also be used to pay other commodities and goods. The Oil Exchange would operate from 2007 and will give rise to the petroruble as those countries that buy oil and gas from Russia will have to acquire them and use it as reserve.

References

  1. [68253],
  2. The Iranian line in the sand, Dan Crawford, The Republic (Vancouvermarker), August 18 to 31, 2005
  3. Kish Oil Exchange Planned, Iran Daily, January 24, 2006
  4. A frenzied Persian new year, March 22, 2006, Asia Times
  1. Sterling and the EMS In for a penny
  2. RTS bourse to launch domestic oil futures at start of 2007, May 22, 2006
  3. Putin proposes creation of ruble-denominated oil, gas exchange, May 10, 2006.
  4. Dollar too unstable to be reliable - Russian minister. April 21, 2006.
  5. Vladimir Putin and the rise of the petro-ruble


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