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| Chair of The Danish Central
Bank, Bodil Nyboe Andersen |
| Courtesy National Bank
of Denmark |
Bodil Nyboe Andersen chairs the Danish central
bank.
There are three members of the Board of Governors
responsible for monetary policy decisions.
“We three are, in a collective way, responsible
for the monetary policy,” she says. The Central
Bank enjoys full independence in its monetary policy.
They print money and mint coins. It is a small,
tightly run institution with under 600 employees.
The bank takes care of all the normal central bank
activities. It prints money and mints coins. Besides
monetary policy and payment systems, it manages
the foreign currency reserves, produces economic
analysis and undertakes various kinds of trading
activities. In addition, the central bank is the
agent for government borrowing when that is necessary.
“It hasn’t had to borrow net lately because
it has a surplus," says Ms. Andersen. "But
it has to refinance the old debts.”
The central bank was set up in 1818 to curb hyperinflation
that occurred in the wake of the Napoleonic Wars.
Denmark had to give Norway to Sweden.This hyperinflation,
called a government bankruptcy, ended in 1813. The
bank, says Ms. Andersen, was “set up to give
credibility to money again -- to show the world
that the printing presses were governed.” It’s
been functioning that way ever since. “We have
a stability-oriented economic policy.”
The bank now operates under a law from 1936. Quite
unusual for the time, the legislation gave them
full independence. Therefore, Denmark didn’t
have to change the law when the Maastricht Treaty
went into effect.
“Contrary to the other out-countries, we peg
to the euro with a stable exchange rate policy.
Since the 1980s we followed that successfully. So
when the European Central Bank changes interest
rates we do the same, with possible local variations
relating to the capital movements.”
Denmark’s goal is to regulate economic activity
and inflation through fiscal policy. Monetary policy
has been aimed at supporting exchange rate policy,
the object of which is to ensure a stable exchange
rate for the Danish krone. They have worked in the
European exchange rate agreements like the EMS European
Monetary System (EMS), which developed into the
European Monetary Union (EMU) in 1999. Denmark has
chosen to stay outside, but they keep the krone
to a central parity of DKK 7.46 per euro, with a
tiny fluctuation band of plus or minus 2.25 under
the ERM2 agreement – the successor to EMS.
The tools they have to work with, as with most
central banks, aren’t many. They can cut or
raise short-term interest rates. They can intervene
in the foreign exchange markets, which they did
as recently as last Sept. ”It’s quite
regular with small amounts,” Andersen says.
Many people believe, of course, that the euro will
trickle into the Danish economy. Tourists are already
paying for things with them.
Thor Pedersen, the finance minister, is an enthusiastic
member of the new government, and passionate about
his new role.
“I do everything, everywhere," he says.
"This ministry is the hands or the nerves everywhere.
It’s not about economy only, it's also about
politics. So to make politics you have many possibilities
to give ideas to your colleagues.” It would
be unthinkable to make a major policy decision without
consulting the Ministry of Finance.
Pedersen's proudest achievement so far was creating
the budget for 2002. “We took over on November
27 and canceled the [previous government’s
budget] -- 3,000 pages in three weeks," he
says. "We worked day and night for 20 days,
and we had a good result, with very few mistakes.
We presented it on a Friday and we had an agreement
Monday, which has never been seen before.”
Right now the government is sitting on a surplus
2.2 percent of GDP, and it projects the same for
next year. “The private sector and public are
financially sound,” he says. “We have
the lowest level of unemployment in 20 years --
less than five percent. We will see a 2.3 percent
growth in 2003 -- pretty much the limit of our capacity.
We have no economic problems and hope not till 2010.”
Asked for an example of Danish financial stability,
the head of the central bank's secretariat, Bjarne
Skafte, said that, “A lot of Americans have
pensions in Danish bonds and they don’t know
it -- in government or mortgage bonds."
Ms. Andersen’s message on the state of Denmark’s
financial condition: "We’ve had a very
stable economic development, low inflation, low
unemployment, and a stable surplus. The most important
thing is to have no big swings.”
For more information, please visit: www.nationalbanken.dk
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