Petrocurrency is a neologism used with three distinct meanings, often confused:
- Trading surpluses of oil-producing nations, referred to as petrodollar recycling.
- 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).
- Currencies used as a unit of account to price oil in the international market.
Oil producers' trading surpluses
"Petrocurrency" or (more commonly) "petrodollars" are popular shorthand for revenues from petroleum exports, mainly from the OPEC members plus Russia and Norway. Especially during periods of historically expensive oil, the associated financial flows can reach a scale of hundreds of billions of US dollar-equivalents per year – including a wide range of transactions in a variety of currencies, some pegged to the US dollar and some not.
The Dutch guilder was once regarded as a petrocurrency due to its large quantities of natural gas and North Sea oil exports. The Dutch Guilder strengthened greatly in the 1970s, after OPEC began a series of price hikes throughout the decade that consequently increased the value of all oil producing nations' currencies. However, as a result of the appreciation of the Guilder, industrial manufacturing and services in the Netherlands during the 1970s and into the 1980s were crowded out of the larger national economy, and the country became increasingly non-competitive on world markets due to the high cost of Dutch industrial and service exports . This phenomenon is often referred to in economics literature as Dutch disease.
The Canadian dollar is increasingly viewed as a petrocurrency in the 21st Century. Generally speaking, as the price of oil rises, oil-related export revenues rise for an oil exporting nation, and thus constitute a larger monetary component of exports. Thus it has been for Canada. As their tar sands oil deposits have been increasingly exploited and sold on the international market, 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. As long as oil exports remain a strong component of Canada’s exports, oil prices will influence the value of the Canadian dollar. If the share of oil and gas exports increases further, the link between oil prices and the exchange rate may become even stronger.
Currencies used to trade oil
Since the agreements of 1971 and 1973, OPEC oil is generally quoted in US dollars, sometimes referred to as petrodollars.
Since the beginning of 2003, Iran has required payment in euros for exports to Asia and Europe. The government opened an Iranian Oil Bourse on the free trade zone on the island of Kish, for the express purpose of trading oil priced in other currencies, including euros.
- Nsouli, Saleh M. (March 23, 2006). "Petrodollar Recycling and Global Imbalances". International Monetary Fund. Retrieved January 14, 2017.
- "Petrodollar Profusion". The Economist. April 28, 2012. Retrieved February 7, 2016.
- Sterling and the EMS In for a penny
- "Is the Canadian dollar a petrocurrency?". UBC News.
- "Kish Oil Exchange Planned". Iran-Daily.com. Iran Daily. January 24, 2006.
- "A frenzied Persian new year". Asia Times. March 22, 2006.
- PetroTalk.com Portal for petro related Articles, Discussion, Links and more
- Washington Report
- A Look At The World's Economy (December 2000) from CBS News
- IMF warns trade gap could bring down dollar
- Petrodollar Warfare: Dollars, Euros and the Upcoming Iranian Oil Bourse
- The beginning of the end for petrodollar by Bulent Gokay, 15 March 2006.
- Cost, abuse and danger of the dollar by Rudo de Ruijter, Mathaba News, March 7, 2007.
- In a graphic illustration of the new world order, Arab states have launched secret moves with China, Russia and France to stop using the US currency for oil trading