On currency and oil
Musings about progress and restructuring
In his annual speech, the Governor of the Bank of Norway recently said that oil prices have fallen sharply over the past six months. Even if prices edge up again, we have been reminded of the uncertainty of future revenues. The development of an advanced oil service industry has been an industrial adventure. The oil age is far from over. But activity in the petroleum sector has passed the peak. In addition, we must be prepared for lower returns in the oil industry. The key to economic progress is the ability to restructure.
Money is the core of central banking. The first known Norwegian coin is a penny attributed to Olav Trygvason, around the year 1000. The Bank of Norway was established June 14, 1816. The hall where Governor Øystein Olsen gave his speech featured an exhibit covering the monetary history of modern Norway. It begins with the speciedaler from 1817 and continues up to the current banknote series. The new banknotes are intended to function as a calling card for Norway; the choice of the sea as the theme embraces both our past and present.
The annual speech reminds me of a story about a self-made man and one of the wealthiest in Norway, Olav Thon. Every weekend he hikes in the mountains. One day it was very wet. Close to a small summer farm he knocked on the door for shelter. The farmer said that his wife was not feeling well and he had to milk about 30 goats. Thon said that he could milk the goats. The farmer was persuaded and invited him to stay overnight. Thon did not think more about it. In February he was invited to the governor’s annual address and the following banquet at the Grand Hotel. During the dinner the governor came to him and said that he knew his uncle. Thon could not understand this so the governor at the time, Hermod Skånland, said, “You have milked my uncle’s goats!”
According to the governor, the large revenues from the oil industry have been managed soundly. The discovery of oil in the North Sea provided ample opportunities for Norwegian business and industry. It required development of new technologies. We had to build up expertise in our own country. The activities provided a boost to other industries.
The recent fall in oil prices by nearly 50 percent comes on top of a planned adjustment to a lower activity level in the oil sector. Low growth in the world economy and more energy-efficient production methods is part of the picture. In the U.S., oil production rose by more than 50 percent. The additional supply from U.S. shale oil is more than twice as high as Norwegian oil production. The fall in oil prices is a positive factor for the world economy. In the U.S., the recovery is on a firm footing. An expansionary monetary policy appears to be having the intended effect and both consumption and investment have turned up again. Unemployment has come down. For Norway the answer is restructuring!
This article originally appeared in the March 6, 2015, issue of the Norwegian American Weekly.