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Danish krone notes being printed in Copenhagen. There is grave concern in Denmark that the
currency's exchange-rate peg to the euro will be broken. |
By
DAVID JOLLYFEB. 12, 2015
Read more about Denmark playing a leading role behind the scenes like a puppet-master in the reports by Tom Heneghan Update Feb 1, Feb 3, Feb 8 2015.
Danish Central Bank are becoming more and more like FEDs in USA, large-scale bond buying policy known as quantitative easing or just ability to print money — create additional currency, we all know and understand what that leads to in the long haul..... among many factors, prices will rise.
COPENHAGEN — To better understand the wave of negative interest rates among European central banks, consider the krone.
The krone — or crown, as it is known in English — is more than simply Denmark’s currency. For more than three decades, the government’s efforts to control the crown’s value have effectively defined the Danish economy.
That is because in October 1982,
Denmark decided on what then seemed a radical plan to secure its economic future: It would tie its fate to West Germany, its biggest trading partner, by adopting a fixed exchange rate for the crown against the German mark.
It was a gamble that a small nation with a strong neighbor was better off surrendering control of crucial parts of its economy in return for a stable currency.
Over the years, that tie, or “peg,” morphed into a fixed-rate arrangement with the successor to the mark, the euro currency now used by Germany and 18 other European Union countries — though notably, not Denmark.
The bet on the peg has paid off. Today, living standards in this Scandinavian nation of 5.6 million are among the highest in the world. And Denmark is one of just nine countries whose government debt is given the top grade, an AAA credit risk, by all of the major ratings agencies.
But in recent weeks the country’s fixed exchange-rate regime has come under extreme strain, as
moves by the European Central Bank have caused the value of the euro to plummet.
That has led to grave concern here, as speculators bet that Denmark’s currency peg to the euro will break, giving them outsize profits on the Danish assets they hold as the crown rises in value.
For the Danes, however, breaking the crown-euro peg could be an economic catastrophe. Thousands of people might be thrown out of work if businesses became less internationally competitive and wealth evaporated as euro-denominated pension assets plunged in value.
