Focusing on the last 15 years, somewhat larger fluctuations have been observed since 1997. In 1998 the price of oil dropped temporarily below $ per barrel. This year the price has increased substantially above the $ to $ a barrel price range that we consider a more “normal” level. 4. Fluctuating oil prices and economic stability: Dutch disease and the Government Petroleum Fund  Oil revenues increase consumption possibilities. However, it is a challenge to manage these resources in a way that increases welfare for current and future generations. A rapid expansion of the sheltered sector based on uncertain and perhaps temporary increases in petroleum revenues may lead to the situation called Dutch disease. The impact of oil price fluctuations on the exchange rate and on economic stability in general will depend on the speed at which petroleum revenues are used. In general, income can either be used now, or saved by accumulating assets abroad, so as to redistribute the increased income and thus consumption between generations. The income can be used to increase net imports while resources BIS Review 121/1999  4  from the internationally exposed sector are transferred to the sheltered sector. This will allow for increased consumption of both exposed and sheltered sector goods. If petroleum revenues are to be used for increased sheltered goods consumption, a real exchange rate appreciation will be needed to initiate the reallocation of resources to the sheltered sector.
This real quantity has to be exchanged among members of the society. Since it is practically impossible to trade one commodity for another commodity in a modern complex economy, there arises the need for adopting a common medium of exchange. “Money” offers the service of this common medium of exchange at the cheapest cost to conclude the transactions running into billions. BIS Review 48/2007  1  Money, unlike the real commodities, is a peculiar animal. Its usefulness arises from its ability to acquire real goods and services which people can enjoy. If money does not have this ability, no one would be interested in having money. Hence, the value given to money is simply an imaginary value . As a result, money bears a nominal feature, as against the real feature borne by other goods and services. That is why any value measured in terms of money is also known as a nominal value. We may illustrate the role played by money in an economy by considering the operation of a simple economy where there are only two commodities, say, coconuts and money. Everybody has to use money to get coconuts or use coconuts to get money so as to store their wealth (for getting coconuts in the future). Suppose there were 10 coconuts and 100 units of money. Then, each coconut has to be exchanged for 10 units of money per coconut.