With Chicago-based CME Group Inc all set to launch contracts linked to the $1.1 billion California spot water market, consumable water will now be traded on Wall Street. In a first, water is officially joining gold, oil and other commodities that are traded on Wall Street.
Now farmers, hedge funds and municipalities will be able to bet on potential water scarcity starting this week. It remains to be seen if this will enable water users to create a balance between supply and demand. An imbalance is the underlying cause of the scarcity. According to UN, water shortages could affect around five billion people worldwide by 2050.
Nasdaq Veles California Water Index started two years ago. It has already set a base spot price of water rights in California.
“California has long periods of dry conditions followed by short periods of very wet conditions. And that affects the price a lot,” Patrick Wolf, lead product developer with Nasdaq Global Indexes, told CNN.
The January 2021 water contract that went live December 7 had two trades, a Bloomberg report said.
(With CNN, Bloomberg inputs)