Where´s that “Viking Spirit”


They don´t go out on raids any longer! Actually, they have pretty much been constrained to remain very close to the 7.46038 (DKr/EUR) “parallel”. Whenever they try to “break-out”, even a little, especially to the “south”, they are “reminded” to “come back”, lest the wrath of Odin will damn them!


Periodically, they try. Last February:

The currency slid after a report by Reuters said the central bank was willing to use capital controls if necessary to defend the peg, citing Hans Joergen Whitta-Jacobsen, the head of the Economic Council, an independent body of academics known as the “Wise Men.” In a follow up interview with Bloomberg, Whitta-Jacobsen said he has never advised the government or the central bank to impose capital controls.

The central bank would never unilaterally break the rules that Denmark abides by inside the European Union, he said. The earlier comment to other media was “a way of expressing that the central bank would go very far and do whatever it takes” to save the peg, he said.

Reports from today:

The man overseeing the world’s longest period of negative interest rates says any funds betting against the currency peg he’s defending will ultimately lose money.

“Last year the central bank made a profit on movements in the market,” most of which came from currency trades, Governor Lars Rohde said in an interview at the Danish central bank in Copenhagen on Thursday. “Someone must have been doing the opposite trade.”

But for others, the guarantee from the central bank is enough. “We don’t have any krone hedges and never have had any because we have full confidence in the central bank’s ability to defend the peg,” Kasper Ullegaard, who oversees all fixed-income investment at Sampension, which has $38 billion in assets, said by phone.

Lower Bound

As governor of Denmark’s central bank, Rohde oversees a monetary policy institution that has kept its rates below zero for the better part of almost four years. He has even said that market estimates that Denmark’s policy rate might not go positive until 2019 may well be right.

The experience has provided the lesson that minus 0.75 percent is not the lower bound, Rohde said. We also know that negative rates work much in the way that positive rates function, and there’s no collapse in monetary logic once one passes zero, he said. And though the ability of negative rates to revive inflation is questionable, the policy’s impact on exchange rates seems clearer. Denmark won praise from the International Monetary Fund for its successful peg defense last year.

If only they had chosen to better “peg” (target). Wouldn´t it be great to hear that same guy saying “we have full confidence in the central bank´s ability to keep NGDP on target”.

Very un-Vikingly they outsourced their monetary policy, the economy´s “blood vessels”, to the guys in Frankfurt. While the ECB was doing a good job, keeping the “vessels” unclogged, they were also doing great. But, as soon as the ECB “messed-up”, they suffered from trying to keep the currency peg “whole”.


What a waste.

Moral of the story: Don´t try to bet against stupidity!

One thought on “Where´s that “Viking Spirit”

  1. Global central bankers are evidently unable to see themselves. They follow nostrums and rules and convention, even after perennial failure.

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