If the oil fund performance is measured in dollars or the currency?

Norway as a nation do not have foreign exchange risk against the Norwegian krone. It is therefore most appropriate to measure the oil fund's performance in international currency.

The statements of the Government Pension abroad, known as the Petroleum Fund, the values recorded in Norwegian kroner. Measured in Norwegian kroner, the result is a positive return of 70 billion, over 2008 and 2009 combined. The percentage poll of the fund's returns, however, in foreign currency. Measured this way, the fund had a negative return of 20 billion over two years.

Currency risk is a classic example of the difference between enterprise and economics. All Norwegian companies that have assets or liabilities in foreign currency, will be aware of currency risk. If the exchange rate appreciates or depreciates unexpectedly and much, could affect the company be or not be.

How currency risk is not a danger either to the Norwegian State or Norway as a nation. Neither the state or the nation will be richer or poorer, if the price of Norwegian kroner will be written up or written down. Norway does not have foreign exchange risk against their own currency.

This is also true for the oil fund. If the exchange rate suddenly depreciates by 20 percent, the immediate increase in value in the oil fund of well over 500 billion. But we have not become richer, even if there is a higher number in the oil fund balance. The fund is not increased purchasing power of a Norwegian devaluation, in the same way that the nation will not be richer by it.

Experiences with devaluations throughout 1970 - and 80-figure also shows this. Reduction of the crown only resulted in prices and wages rose accordingly. We received a lower monetary value, but not better competitiveness or changed purchasing power.

Oil Fund's assets are by law invested in foreign currency. The reason is that we must avoid a strong effort and large impact on the cost or the real exchange rate for the Norwegian krone as the state's petroleum revenues in a few decades are high and strongly fluctuating.

Therefore, the return in foreign currency target for the results of the Fund's investments in stocks and bonds. The return on both the benchmark index that the Ministry of Finance and on the actual portfolio is measured in foreign currency. The most important measure of the performance of Norges Bank's managers is the excess return measured in foreign currency.

Since the fund's size, measured in Norwegian kroner, the basis for the use of oil money over the state budget, the exchange rate, however, not without significance. This mechanism has a small element of automatic stabilization, since the exchange rate will typically force and capital fund measured in Norwegian kroner fall when the Norwegian economy is going well.

Since 1998, the krone strengthened. It has contributed to the fund's value is 150 billion lower than if the crown had been fixed. The guidelines for fiscal policy is that the state will use the expected real return, or 4 percent of the fund in the annual average over the business cycle. The impact of the appreciation of the state's use of oil money can thus be estimated at 6 billion. This corresponds to half a billion per year in those years with strong economic conditions in the Norwegian economy.