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The Rise of Petro-dollars and Its Impact on the International Financial Markets

Author: WangHong
Tutor: LiXiao
School: Jilin University
Course: World economy
Keywords: Petro-dollars Prices of Financial Assets Financial Market Stability
CLC: F832.5
Type: Master's thesis
Year: 2013
Downloads: 124
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Abstract


Petro-dollars’ impact on the international financial markets has been the focusof domestic and foreign scholars. After the rise in oil prices in the1970s, the theorybegan to appear. Related literature on the theory and research methods has achieveda major breakthrough, but research on the petro-dollar impact on the internationalfinancial markets is still imperfect. This article focuses on the status and role ofpetro-dollars in the process of rapid development of the global economy. Startingwith the discussion of the connotation and scale of petro-dollars, then it comes to theinvestment characteristics of petro-dollars. This article provides a detailed analysisof cycle of the petro-dollars in global financial markets. Petro-dollars increase theliquidity of the international financial markets, so it will have a certain impact on theprices of financial assets and financial market stability, but the effects of good or badcan not be simply determined, we should focus on its future development trend andstrengthen the global financial coordination in order to take preventive measures.Petro-dollars became the focus of the international political and economic gameunder the conditions of the world economic environment is serious infiltration ofpolitical factors, the level of oil prices and how much of petro-dollars are not onlythe result of the economic game but also the result of the political game. The mainreason lead to the rapid accumulation of petro-dollars is the price of oil, whichmeans the large number of oil dollars just leads to a redistribution of global wealthand purchasing power, but the world did not obtain more oil. In the seventies andeighties of the19th century, on the one hand, dozens of non-oil-producingdeveloping countries faced with the risk of the budget deficit, on the other hand,oil-producing countries need invest in a safe manner, which produces international capital flows from the oil-producing countries to non-oil-producing developingcountries. Into the21st century, the flow of petro-dollars become diverse. Sovereignwealth funds has become a trend, and such assets have no debt, so it has a broaderinvestment horizon, investment tends to be long-term oriented, and its risk toleranceis higher. So Sovereign wealth funds have an important impact on the price level ofthe risk asset markets. With global capital markets highly developing, investmentvehicles become very rich, by global investment petro-dollars are changing the mainstructure of the global capital market investment.In the fixed-income market, the interest rates greatly reduced for the flow ofpetrodollars. Petrodollars also increased the international stock market liquidity and,to some extent, contributed to the generation of foam. In the global real estatemarkets, Petrodollars investors’ real estate preferences also improved the liquidity ofthe market. Due to the diversification of investment channels, investment ofoil-producing countries can not be completely counted, petro-dollars already becomevery subtle, and investors’ identities become illegible. In addition, I have usedeconometric models to verify the positive correlation between petro-dollars and thedollar.Petro-dollars has profound effect on the stability of the international market.Firstly, the role of petro-dollars to make up for the the international imbalances isweakening; secondly, petro-dollars will exacerbate the emerging market bubble;thirdly, petro-dollars may lead to financial protectionism. Whether the impact ofpetro-dollars on the international financial market will bring opportunities orchallenges needs different angles to look at, but even the petrodollars will bring abull market, people still have reason to be careful.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market
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