Why does denmark use the krone

Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Your Money. Personal Finance. Your Practice. Popular Courses. The krone has existed in some form in Denmark since the early s, and today is pegged to the euro at a rate of 7. Denmark is part of the European Union but has opted to retain its own independent currency. Article Sources. Investopedia requires writers to use primary sources to support their work.

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This compensation may impact how and where listings appear. This policy is practised, for instance, by the USA and Sweden. At the other end of the spectrum are countries that abandon their own currencies to use the currencies of other countries as their sole means of payment. This provides for a completely fixed exchange rate. This policy is practised, for instance, by Kosovo and Ecuador.

Monetary policy is the economic policy set by the central bank. When conducting monetary policy, the central bank basically sets a rate of interest that is passed through to the general level of interest rates in the economy. The exchange rate policy chosen by a country provides the framework for its monetary policy. When a country has chosen to conduct a fixed exchange rate policy, interest rates are reserved for managing the exchange rate, so they cannot also be used for impacting economic activity.

In Denmark, the government, in consultation with Danmarks Nationalbank, determines the foreign exchange policy to be conducted. Danmarks Nationalbank conducts monetary policy within the framework of the fixed exchange rate policy.

In other words, the sole purpose of Denmark's monetary policy is to keep the krone stable against the euro. Danmarks Nationalbank is independent in its conduct of monetary policy and neither the Folketing Parliament nor the government can determine the formulation of monetary policy.

This gives a clear division of responsibility for economic policy. Being a central banker in Denmark is no fun. If the currency peg is under pressure you can only act in ways that may be perceived to have negative implications for your economy and citizens. In fact, policy options include currency intervention first and then either higher or lower interest rates depending on whether there is upward or downward pressure on the currency.

And finally you do not even have a mandate on the ultimate decision, i. Danmarks Nationalbank cut its deposit facility rates to a record low of It was forced to buy a record DKK billion EUR 37 billion worth of foreign currency in January-February in an attempt to counter the upward pressure on the Danish krone and preserve the peg, thereby driving up foreign reserves to about DKK billion EUR billion.

The size of the central bank balance sheet is not huge but it has already exceeded 30 per cent of GDP. Effectively, the band has been maintained within an even narrower 1 per cent fluctuation. According to the ERM II, the ECB is contractually obliged to intervene together with the central bank of the country when the currency reaches one of the band limits. All that is true but here is the paradox of the choice made by Denmark to peg to the euro.

The Danish central bank has made it clear that it will never, never change the parity with the euro. But if it is serious about this, it makes no sense to keep Danish krone. The Danes could as well take over the euro. This is in fact the only choice that makes it fully credible that the parity will never be changed. In addition in that case the Governor of the Danmarks Nationalbank would sit around the ECB table in Frankfurt to co-decide about monetary policies, while today he has to wait close to the telephone for news from Frankfurt to learn what he should do.

Since Denmark keeps its own currency and exchange rate with the euro it signals that it is keeping an option, i. If it does not want to signal this, it can simply take over the euro. The very existence of the option indicates that Denmark prefers to keep the door open to devalue or to revalue.

This choice makes perfect sense. Click and collect or walk in to our stores. If they can actually get your exotic currency, prepare for a couple of visits to your bank before you can have the money on your hands.

Expenses At Copenhagen airport you pay the exchange rate, without any additional charges. The bank sets its own margin plus a commission. Prepare for refusals and complaints in foreign languages when paying with «big» banknotes. Delivery options Order online to benefit from a price reduction and collect at the branch of your choice. Immediate availability of currencies in our branches at Copenhaguen and Billund airports.

At Copenhagen airport you pay the exchange rate, without any additional charges.