Forex Blog: Currency Trading News & Analysis.

November 23rd 2005

OPEC nations prefer Dollars over Euros

For the last few years, policymakers around the world have publicly griped over the trade surpluses of emerging Asian economies, which may collectively approach $200 Billion this year. Perhaps they should shift their attention to the oil-exporters, which are expected to collectively record a current account surplus exceeding $400 Billion. Thus far, OPEC nations have ‘equalized’ their massive surpluses by recycling their oil profits into dollar-denominated assets. However, many analysts reckon this will only hold in the short-term. As oil exporters become accustomed to high oil prices and proportionately large current account surpluses, they will likely invest the proceeds at home in domestic assets and infrastructure projects. They may also diversify their foreign exchange reserves into Euros, in order to mitigate the risk of a weakening dollar. The Economist reports:

Russia’s central bank has reduced the share of dollars in its foreign reserves over the past couple of years, but it is still around 65%. The central bank has said that it wishes to hold more euros.

Read More: Recycling the petrodollars

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