Negative interest rates – a contradiction in terms?

Many older Danish citizens remember the good old days when inflation took care of their debt and the nominal interest rate exceeded 20 percent per annum.

Lessons from 1813
Never did it occur to Danes that negative interest rates would be realistic, but now raiders are trying to tumble the 30 years of firm currency policy, which was instituted after decades of devaluations that were about to  jeopardise the economy. 

Thoughts returned to 1813 when the Danish state went bankrupt in the aftermath of the Napoleonic Wars and left the kingdom without Norway. At that event, only the top ranking  securities in all real estate re-established a new currency and financial system. (Some of these ‘bankhæftelsesobligationer’ still surface from time to time, much to the surprise of real estate agents and lawyers).

In 2000, the Danes held on to the kroner by a narrow margin. During the debate at that time, it was said the euro was a weak currency and that Denmark would be better off if she could follow the dollar and pound. 

As if glued together
Nevertheless, they stuck to D-mark and later the euro as if glued together. It was basically as a precaution that would theoretically allow a devaluation if needed – which the Swedes have benefited from in their own currency policy. But it has also been in expectation of help if needed. In reality, it worked as a most solid foundation of the trust in Danish economy.

The CEO of the Central Bank (Nationalbanken) has called for total defence and initiated it with the same confidence with which the ECB issues buying orders for state bonds in Southern Europe. Negative interest rates are part of that.

If the kroner should fall short of the defence measures and revaluate by as much as 20 percent, it would be a blow to the government and opposition alike in their expectation of growth in the coming years.

Maybe it’s time to reconsider the 2000 referendum and incorporate the currency into the upcoming referendum on the legal reservations that is already in the planning. That would be logical and not contradictory.