![]() Oil economies are different, and their management does pose some unique challenges. ![]() There are not domestic pressure groups in the US demanding an appreciation of the riyal, but, unless the profits of Exxon Mobil and the Saudi royal family fall, the riyal needs to rise as much as the renminbi. That applies to the currency regimes of the oil exporters every bit as much as China. I agree with the Treasury: the IMF has not paid enough attention to exchange rate pegs that impede effective global adjustment. These countries generally speaking need to spend more, not less - and a sliding currency reduces their external purchasing power. Jen's forecasts) to help reduce the US trade deficit, it certainly does not make sense for the currencies of oil exporters to get weaker. Saudi Arabia might want to take notice.Īnd should oil prices remain high and the dollar resume its slide (contrary to Mr. See Jeff Frankel's proposal to peg to the export price (The Canadian dollar can be thought of as a proxy) and his specific recommendation for Iraq. That would help these countries' economies adjust to fluctuations in commodity prices. And they would not import the monetary policy of an oil importer, which may not be right for an oil exporter. Then, their currencies would rise along with oil prices, and fall along with oil prices. Oil exporters would be better served if they pegged their currencies to another commodity currency - say the Canadian dollar. I have long argued that it does not make sense for China, a country with a large current account surplus, to peg its currency to currency to the dollar, the currency of a country with a large current account deficit. That depreciation - at least of their broad nominal exchange rate - has come even as oil revenues are way, way up. In real terms, the currencies of many oil exporters has followed the dollar down since 2002 - the dollar has rallied this year, but its rally still pales relative to its overall slump v. Those pegs, like China's peg, are impediment to global adjustment. Many other oil exporters also either peg to the dollar or intervene heavily to resist currency appreciation. According to the IMF, the surplus of Russia and the Middle East will surpass the combined surpluses of the Asian NICs (Korea, Taiwan, Hong Kong, Singapore) and emerging Asia (China plus).Īnd Saudi Arabia is not alone. India and Thailand are looking at current account deficits. The same is true of most of non-China Asia. Saudi Arabia and Russia are likely to each run current account surpluses of around $100 billion this year - not that much less than China.Īnd relative to GDP, there is no doubt that the world's biggest current account surpluses are now found in the world's oil exporters. Stephen Jen is certainly right to note that rising oil prices have shifted the world's current account surplus to the Middle East and Russia. Saudi Arabia pegs to the dollar at a rate of 3.75 riyal to the dollar. The currencies of commodity countries should rise as commodity prices rise. Trust me: it now takes more US dollars to buy both a barrel of oil and a Canadian dollar. But you will have to use your imagination. If I had a bit more time and technical skill, I would invert so it could be more easily compared with the oil price graph. But Canada's currency still tends to move in line with commodity prices - see this graph. The "unfair" competitive advantage created by national heath care has made Ontario the new Michigan. Subtitle: China's currency regime is not the only impediment to global adjustment.Ĭonsider these two graphs (follow the links):Īnd the export revenues of Gulf oil exporters, in dollars.Ĭanada also exports a lot of energy.
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