The problem of recycling OPEC surplus funds: a proposal

Abstract

In the aftermath of the oil crisis the greater part of OPEC surplus funds have been recycled through the American Banking system and the Eurodollar market. The present paper proposes a recycling mechanism which would be complementary with regard to those already in existence and those foreseeable for the future, such as SDR and ECU substitution accounts. According to the authors, such complimentary recycling is consistent with the present portfolio composition of the oil-exporting countries and would also promote faster growth. The recycling mechanisms in force before and after the 1973 crisis are fist compared. An extension of the lifecycle theory of saving is then used to provide a theoretical framework for the proposed recycling mechanism. This is followed by a formalisation of the basic proposal, a discussion of its main implications and conclusions.

JEL: F33, F36, F42, Q43