The restriction by national governments on the flow of domestic currency is often regarded as the preserve of non-free market nations such as China, North Korea or Argentina, ruled by either a single party or an administration which aims to control its population whilst restricting interaction with overseas jurisdictions.
One of the last regions which any seasoned economist would associate with the imposition of the restriction of sovereign currency to within its borders is Scandinavia, with its highly developed market economy and outstanding financial position…. until now.
Denmark’s central bank has been grappling with the arduous task of attempting to maintain the Krone’s peg against the Euro, having attempted many measures recently including the purchasing of foreign currencies to the tune of 32 billion Euros just this year as well as selling record numbers of foreign currency to intentionally devalue the currency to make it less of a safe haven for investors, with some FX firms having become aware of the potential risk associated with this that they have ceased to offer trading of the Danish Krone.
The head of Denmark’s Economic Council, Hans Jorgen Whitta-Jacobsen has taken the opposite stance to the Swiss National Bank which dropped its peg on the EURCHF on January 15, protecting its currency and domestic economy but sending the Swiss franc’s value soaring to the point that many FX firms suffered negative client balances, and others did not survive at all.
Mr. Whitta Jacobsen stated that he would defend the peg “to the last drop of blood.”
“If it takes restrictions on free capital movement for a period to defend the fixed exchange rate, I assess that the central bank would be willing to go that far” Mr Whitta-Jacobsen stated publicly.
Should Denmark go down this route, it would represent an intervention that would equal approximately 10% of Denmark’s own GDP, rendering it potentially unsustainable, thus the action that is being investigated by Denmark’s Central Bank may well be the opposite to that taken by Switzerland, with indeed the opposite results.