TITLE

OPEC AND THE DOLLAR DILEMMA

AUTHOR(S)
Amuzegar, Jahangir
PUB. DATE
July 1978
SOURCE
Foreign Affairs;Jul1978, Vol. 56 Issue 4, p740
SOURCE TYPE
Periodical
DOC. TYPE
Article
ABSTRACT
The article presents the actions proposed by the members of the Organization of Petroleum Exporting Countries (OPEC) in response to the problem of the U.S. dollar devaluation. The schemes suggested for OPEC to deal with dollar depreciation are: a hike in the price of oil to compensate for the dollar's fall--proposed by Iraq, Kuwait and Venezuela, and supported in principle by Indonesia; and a switch from the dollar to a currency basket, or currency cocktail for the purpose of oil-pricing policy--advocated by Iraq, Qatar and the United Arab Emirates, and supported by Venezuela. Another suggested scheme to make up for dollar depreciation would be a shift to a basket of currencies as the basis for pricing crude oil. Other proposals discussed have had to do with: a revised Special Drawing Rights (SDR) basket in which the U.S. dollar would have a smaller weight, or would be eliminated in favor of the Swiss franc; a renewed Geneva II basket; and a four- or five-currency basket comprising the mark, yen, French franc, pound sterling, and Swiss franc. Oil pricing in terms of the SDR would benefit the oil exporters by: reducing fluctuations in oil earnings in terms of domestic currencies; increasing stability of petroleum revenues relative to import expenditures from non-hard currency sources, which account for more than 55 percent of OPEC imports; and enhancing the bargaining position of OPEC vis-a-vis the oil companies by cutting the exchange risks that the latter must bear or hedge against because OPEC oil is paid for in U.S. dollars, but is sold in world markets in a mix of currencies. Under the amended Articles of Agreement of the International Monetary Fund (IMF), every country is free to choose its own exchange arrangements, i.e., to peg its monetary unit to another member's currency, or to a basket of currencies of its own choosing, or to the SDR; or not to peg, and to follow other procedures--subject only to an overall surveillance by the IMF.
ACCESSION #
4851264

 

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