This year has seen strong focus on Denmark’s fixed exchange rate policy. Following Switzerland’s decision to abandon its EUR/CHF floor in mid-January 2015 – and because of quantitative monetary easing by the European Central Bank – the DKK has been under significant appreciation pressure. However, the EUR/DKK peg is a cornerstone of Danish economic policy and, to all intents and purposes, has been so since the 1930s.
Indeed, the Danish central bank Danmarks Nationalbank (DN) has not wavered in its support of the peg and the DN has slashed Danish benchmark policy rates to a record low minus 0.75%, while also boosting Denmark’s FX reserves to keep the peg in place. Since the end of February, the appreciation pressure has eased.
The Danes going to the polls on June 18th will not affect Denmark’s fixed exchange rate policy. The EUR/DKK peg is not an issue in the election campaign, as this key element of Danish economic policy enjoys broad backing from the political parties in parliament. So, whatever the outcome of the election on June 18th, the peg will remain a fundamental element of Danish economic policy – and the role of the central bank will not be affected by the outcome of the election.
