Danish Monetary and Exchange Rate Policy

The objective behind the Danish exchange rate policy is to maintain a fixed ex-change rate vis-à-vis the euro. This implies that the exchange rate between the Danish krone and the euro is kept stable. The exchange rate policy is conducted within the frames of the ERM II, in which Denmark has participated since the in-troduction of the euro on 1 January 1999. Prior to the introduction of the euro, the Danish fixed exchange rate was vis-à-vis the German D-mark.

The Danish fixed exchange rate regime was introduced in 1982. Ever since, Den-mark has followed an economic and fiscal policy in consistency with the fixed ex-change rate regime. The fixed exchange rate provides numerous benefits for the Danish society: The absence of exchange rate volatility makes it easier for Danish companies to plan their production and investments, it creates confidence among the consumers and it ensures low interest rates. The fixed exchange rate system plays a pivotal role in the Danish economic policy, and has contributed signifi-antly to today’s strong Danish economic performance.

The Danish Government determines the overall objective of the exchange rate policy in Denmark. However, the daily management of the exchange rate policy – the monetary policy – is conducted by the Danish central bank, Danmarks Nationalbank.

The objective of the monetary policy is to support the overall objective of the exchange rate policy, namely to maintain a fixed exchange rate vis-à-vis the euro. The monetary policy is primarily conducted via the very short term interest rates. In practise, the Danish central bank steers the very short term interest rates by setting the official discount rate and the central bank’s lending rate.

The overall objective of keeping the exchange rate fixed vis-à-vis the euro implies that the monetary policy and the exchange rate policy are tightly connected.

For more information on the Danish monetary policy, visit the homepage of Danmarks Nationalbank.