Funding: BP funded Oxford Centre for the Analysis of Resource Rich Economies (Oxcarre) and the Equinor chair in Economics at NHH is gratefully acknowledged. ; We estimate the effect of giant oil and gas discoveries on bilateral real exchange rates. A giant discovery with the value of 10% of a country's GDP appreciates the real exchange rate by 1.5% within 10 years following the discovery. The appreciation starts before production starts and the non-traded component of the real exchange rate drives the appreciation. Labor reallocates from the traded goods sector to the non-traded goods sector, leading to changes in labor productivity. These findings provide direct evidence on the channels central to the theories of the Dutch disease and the Balassa-Samuelson effect. ; Publisher PDF ; Peer reviewed