The petroleum fund mechanism and Norges Bank’s foreign exchange purchases for the GPFG
The Norwegian government receives substantial revenues from the petroleum sector. These revenues are in both foreign currency and Norwegian kroner. Some of the oil revenues are absorbed in the Norwegian economy by being used to finance the nonoil budget deficit. The remainder is transferred to the Government Pension Fund Global (GPFG). Because the GPFG is invested in its entirety in foreign currency, the government's NOK revenues for the GPFG must be exchanged for foreign currency. Norges Bank performs the task of purchasing foreign exchange for the GPFG for the Ministry of Finance. This commentary describes how the government's revenues from the petroleum sector are channelled to the GPFG, how portions of these revenues are phased into the Norwegian economy and how Norges Bank calculates the foreign exchange purchases for the GPFG. The commentary also shows the relationship between the petroleum fund mechanism and the NOK exchange rate, and the level of reserves in the Norwegian banking system.
- Ellen Aamodt
- Economic Commentaries
This series consists of short, signed articles on current economic issues and are only published on Norges Bank’s website.