OIL PRODUCERS' EXCHANGE RATE POLICIES

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900020054-7
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 5
• Document Creation Date: December 19, 2016
• Document Release Date: July 29, 2005
• Sequence Number: 54
• Publication Date: April 4, 1974
• Content Type: MF

 Approved For Release 2005/08/22: CIA-RDP85TOO875ROO1900020054-7
4 April 1974
0TAT
STAT
ME?IORANDUM FOR: Mr. Richard Erb
Council on International Economic
Policy
Old Executive Office But1ding
SUBJECT : Oil Producers' Exchange Rate Policies
1. This memorandum is in response to your request
of 28 :March for information on exchange rate policies of
the major OPEC countries.
2. Exchange rate movemexAts have varied among OPEC
members. The major Arab producers and Nigeria have
generally pegged their currencies to gold (see Table 1).
While sizable adjustments have occurred in the dollar
rates of these currencies since the Smithsonian Agreement,
their gold parities h&.ve been stable. Saudi Arabia,
however, revalued the riyal 5.1 relative to gold in
August 1973. Venezuela has generally tied its currency
to the dollar.
3. The currencies of niajo:e OPEC countries are
expected to remain stable in the near future. Some pressure
has developed on the dollar/dinar rate in Kuwait, but this
probably arises from the slight difference in international
and domestic market rates and should ease without serious
consequences. Most countries continue to support tying
their currency to gold. The central b-inks, or currency
boards, conform to 12F rules and regulations when making
currency transactions, including transactions with
commercial banks and oil companies. Commercial banks are
also regulated and charge up to one quarter of 1% above and
below the central ban..s' buying and selling rates when
dealing in currencie9
4. Oil producers traditionally have not been as
concerned about their exchange rates as they are about the
prices of t ivir oil exports and of their imports.
STAT'
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$TAT
In a sense, the currency of the producing countries is
oil; the producers have looked to adjustments in the oil
price for protection of their terms of trade. In the
Geneva Agreement of 1972, OPEC estaLiished a formula
which tied the dollar price of oil to the average dollar
value of nine currencies -- those of Belgium, France,
Germany, Italy, Japan, the Netherlands, Sweden, the UI:,
and Switzerland. This protected the oil producers' terms
of trade from fluctuations in major currencies. The
agreement is technically still in effect, although recent
massive oil price increases radically improved the oil
producers' terms of trade (see Table 2).
5. In essence, exchange rates and exchange rate
policies of oil-produuJmg countries are now of limited
importance. Massive oil revenues in dollars and sterling
provide the means for international payment. With few
exceptions, little is exported from oil-producing countries
except oil, thus making the oil price the only important
item to compare with world import prices.
Attachments:
As stated
Distribution: (S-6066)
Orig. & 1 - Addressee
2 - D/OER
STAT
f
14AURICE C. ERDIST
Director
Economic Research
4 April 1974
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Table 1
Changes in Oil-Producer Currencies
Pre-Smithsonian-February 1974
(percent change)
Iraq
Iran
Kuwait
Libya
Saudi Arabia
Nigeria
Venezuela
Relative to Relative to
Gold US Dollar
0.0 20.6
-7.9 11.1
0.,0 20.6
0.0 20.6
5.1 26.8
0.0 20.6
-15.1 2.4
CIA,/OER
4 :\p~ril 197 ..
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Table 2
Oil Producer Terms of Trade*
(1966 = 100)
1966
1967
1968
1969
1970
1971
1972
1973
1st Quarter 1974
(estimated)
* A simple index of Middle East petroleum prices (IFS
Commodity Price Table) divided by developed countries'
export prices (IFS Export Price Indexes), setting
1966 = 100.
CIA/ o :.
4 A` ~.1 1974
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