The cost level in the Norwegian economy, compared with that of our trading partners, rose substantially with the beginning of the oil age. The level has fluctuated somewhat since then, without exhibiting a clear tendency of being higher or lower, and has, over time, been adapted to the use of petroleum revenues. When we reach a point in the future where the share of imports that can be financed by petroleum revenues declines, the cost level relative to other countries will have to be reduced. Rough estimates indicate that the relative cost level must be brought back to the level prevailing before the oil age started in Norway. The chart shows the demands this will place on developments in the real exchange rate. This depreciation can be achieved either by lower price and wage inflation in Norway than in other countries or by a nominal depreciation of the krone. The latter would be the least painful channel, and with a flexible exchange rate it is also the most likely. Petroleum revenue spending could also have an impact on productivity growth in the Norwegian economy. However, there is no significant difference here between Norway and our neighbours. In  6  The expression “Dutch disease” originates from the Netherlands, where the government rapidly spent large revenues from the extraction of gas in the 1960s. 7  Q. Farooq Akram: “Efficient consumption of revenues from natural resources – An application to Norwegian petroleum revenues.” Working Paper 2005/1.

Many are aging and want to secure their future income through good and safe returns on their investments. We therefore share a common interest in well functioning global capital markets. Asymmetries in financial development prevent us from reaping all the benefits of our savings efforts. These asymmetries exist for good reasons. In many emerging economies, the memories of the 1997–98 crisis are still there. They lead to precautionary behaviors and a very cautious approach to capital market liberalization. Obviously, the case for unrestricted financial development and market liberalization has been somehow weakened by the crisis. Nevertheless, we might be paying a heavy price for the disorganized state of our global financial and monetary system. While real interest rates are historically low, many investments with high returns are not undertaken. Poor and emerging economies growth is, in many cases, constrained by lack of infrastructure. We may face future shortages in many essential commodities because of insufficient investment in the current period. Differences in financial systems also exacerbate capital flows and exchange rate volatility, especially when, as is the case today, monetary policies are widely divergent across countries. Surely, we can do better in the future. Full harmonization and total convergence in financial development between different countries is neither desirable nor feasible. But ensuring that our different financial systems interact harmoniously should be a priority. There are four possible avenues for progress. BIS Review 170/2010  3  First, greater convergence in financial regulation approaches between advanced and emerging economies. Significant advances are being made.