The Role of Commercial Banks in Recycling

In 1974 in the aftermath of the quadrupling of oil prices it became evident that the major oil exporters of the Arabian peninsula would emerge with substantial balance of payment surpluses. A surplus in one country of course implies a deficit in another, in this case the major Western oil importers, and to a lesser extent in absolute terms the oil importers of the developing world, including those in the Middle East itself. The problem for the international financial system was quite simply how to recycle the petro-currency earnings from those states in surplus to those in deficit. Despite the grandiose schemes proposed for collaboration between the OPEC surplus states and the OECD oil-importing countries in tackling the problem, in the end nothing was agreed, and most recycling has taken place on an ad hoc basis without any international supervision.1