Norway's sovereign wealth fund has shielded the krone from the steeper falls suffered by the Russian ruble
When oil price gyrations hit currencies, it’s good to have a cushion to soften the blows.
Norway has a big cushion, a 7.5 trillion kroner ($906 billion) sovereign fund.
After this Sunday’s summit in Doha failed to secure an agreement among oil-producers to curb crude supply, the oil price fell and the currencies of the big crude exporters fell with it. When crude later rebounded, these currencies followed suit.
Among the so-called petrocurrencies, however, one was less moved by events than others: The Norwegian krone. Norway’s oil sector makes up 65% of its merchandise exports. The oil rents—income from selling crude at world prices minus the cost of production—amount to around 8% of the country’s gross domestic product, according to the World Bank.
The Norwegian economy is almost as oil dependent as Russia’s, where the extraction industry makes up about 70% of its merchandise exports, with oil rents adding to roughly 13% of its economy. But while the ruble has fallen about 50% since July 2014, when oil has fallen 60%, the krone has only fallen 25%.
Photo:
The Wall Street Journal
The krone’s move is closer to that of the Canadian dollar and Mexican peso, currencies of two countries where oil takes up a smaller slice of national output.
The big Middle Eastern oil producers, like Saudi Arabia, avoid having a whipsawing currency by tying them to the U.S. dollar, in which oil is denominated.
Norway, it seems, is actually doing something similar, just in a more flexible way.
Since 1967, Norway has saved part of its oil revenues in a sovereign wealth fund.
For a country to save in its own currency could be a bit pointless, because they can always print more of it. It’s not like savers putting money into a bank account. They can’t create their own money.
So saving in foreign assets can make more sense.
Norwegian oil revenues aren’t converted into krona and that saves the currency from upward pressure....MORE
