Exploding currencies and a dual Eurozone?

1 Danish krone / crown = 0.190454 U.S. dollars

COPENHAGEN, Sept 2 (Reuters) - Denmark's foreign exchange reserves rose by a hefty 18.8 billion crowns in August to a new record 475.7 billion crowns ($91.0 billion) as the central bank sold crowns to weaken the Danish currency, the bank said on Friday.

When some one is losing you often also have a winner.

I'm not suggesting Denmark is a winner or a new swizz franc, but In August foreign demand on Danish crown's forced our banks to invest 11,2 billion danish crowns (roughly 2 billion $) in foreign currency to weaken the crown, and that wasn't enough so they also cut two secondary interests with 10 points to further curb the DKr.. It worked but with current speed its time for another cut soon. In June we had a 12,2 billion surplus, which is 1,4 billion more than in May and 3,9 billion more than June last year.

I would like to know what is happening to our lovely danish crowns, is a strong currency bad?.

The crown has recovered to levels seen before the bank's August rate cut after weakening only temporarily, so the central bank could cut rates again before long.

The reserves grew by 7.1 billion crowns as a result of net government borrowing abroad, the bank said.

The reason the danes is weakening their currency is because they want to hold DKr. steady against the Euro.

"The interest rate reduction has had the sought-after effect that the rate spread between short Danish market rates and short market rates in the euro zone has narrowed," Nordea Markets senior analyst Troels Theill Eriksen said in a note to clients. "But on the other hand, the immediate weakening of the crown was temporary, and the crown is now roughly at the same level as before the rate reduction," Eriksen said.

"So the (strengthening) pressure on the crown is not over," Eriksen added, "and it is still on the cards that there could be a further rate reduction before long."

After the financial crisis, the central bank intentionally built up its forex reserves by taking loans and intervening, but the bank probably sees no need to build up the reserves further beyond the current record-high levels. For that reason, the bank would probably intervene only to a limited extent going forward before it would change rates, Eriksen said. "We believe that they will only intervene for 5-10 billion before another rate cut if necessary," he said. "Looking at today's figures with intervention of 11 billion, one could think that they had a target of around 10 billion and then cut."

Resently speculations about the union's stability is growing and there has been suggestions that would make other unions. One of these suggestions talk about the stronger countries like GB, Germany and scandinavian countries should make their own union. In spite of the cut on interest rate and investing in currencies our reserves still grew.

Rather than kick out weaker members, strong countries like Germany should simply walk away from the single currency...

The trendy solution is to simply expel the weaker members of the Eurozone. That would work if Greece was the only problem, but it's not.

But understand this: If Europe's problems aren't resolved in an orderly fashion, the stock market drops we saw last month will be small potatoes compared to the steep declines that lie ahead.

So here's the solution: Let the Eurozone break up right now on its own terms. And let a new, stronger Euro currency come as a result.

•It would also allow the strong Euro countries to manage their own monetary policy. That would wipe out the inflation threat and ensure that domestic savers were adequately compensated. It also would eliminate any need for bailouts among these countries.

However, there are also benefits for the countries that stick with the Euro, which would presumably weaken.

Their inflation rates and interest rates would be higher, of course, as was the case for the Mediterranean countries before the Euro was invented. However, their debts would remain denominated in Euros, so they would not suffer the problems of the Asian countries that devalued in 1998 and increased their debt burdens and bankrupted the banks.

At this point, that is the only viable solution to the problems Europe faces.

Denmark's FX reserves hit new peak after intervention
The Strong Countries Should Leave the Euro - 2 September 2011
Betalingsbalancens løbende poster i juni

In economic warfare,by starving some forcibly,and feeding others to excess,so that they "choke on it",you can destroy the economy of the entire globe.Denmark and Switzerland have been singled out to choke on it.That way NOONE will have "safe" cash.BAHGOOFUH!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

reply to post by bobennenwevun


So you suggest Denmark is a new Switzerland, is anyone able to explain exatly why this is a bad about a strong currency?

Sorry, new phone and out doesn't have a key board so dont mind my spelling..

Strong currencies usually indicate a strong and growing economy.. However.. For many countries its actually more along the lines of they are doing fine our better then most, while the largest economies collapse. Usa ans eur in this case. A strong currency in times like this are bad, it creates a hostile business environment and can lead to a deflating economy.

reply to post by Rockpuck


What your saying is that if the currency become to strong, we have trouble exporting thereby losing revenue?

Countries will stop buying our goods because the currency is to strong?

At moment our national balance of payments is improving steady too.

If our currency grows too much couldn't we just print a few billion to devaluate and control it then buy some gold or energytechnology and other goods with the new money or use some of the foreign currency they "forced" them self to buy?.

As long as they dont print more money than needed to counter the foreign interest, shouln't we be able to control it and avoid a new hyperdeflation like what we saw in Germany many years ago?

If we did what i descibed, wouldn't we become more and more selfsufficient and relly less on foreign countries?

Sorry about all the question's, I guess by now its clear I'm not an expert on economics.

reply to post by Mimir

What your saying is that if the currency become to strong, we have trouble exporting thereby losing revenue?

Not really trouble exporting, but rather when earnings are converted from a weak currency to a strong currency profit is diminished. This is why some countries weaken their currency on purpose (China) because it helps exporters. For a post-industrial economy the complications of a strong currency without the strong economy to back it is complicated.. everything from interest rates to corporate profit can be effected.. thus resulting in lower taxes and budget balancing issues.

Countries will stop buying our goods because the currency is to strong?

No, corporations will make less and less as a currency appreciates.

Of course.. if a currency depreciates to fast (USA, EUR) it causes base good prices (mostly commodities) to inflate rapidly, causing an inflation imbalance between inflation of goods and inflation of wages.

If our currency grows too much couldn't we just print a few billion to devaluate and control it then buy some gold or energytechnology and other goods with the new money or use some of the foreign currency they "forced" them self to buy?.

They are printing.. the Dutch are calling it "selling their currency" but it equates to their Reserve bank printing and dispensing the currency .. ie.. printing. Buying Gold doesn't effect currencies, since currencies are not pegged to Gold. Usually a reserve bank will print and print (the ignorant way) .. print in debt (the American way and EU way) or print and exchange for other currencies, in a way manipulating the FOREX markets if you will .. by using their currency to buy other nations currencies they increase the "BUY" order of those currencies resulting in strengthening the target currency while depreciating the host currency.

As long as they dont print more money than needed to counter the foreign interest, shouln't we be able to control it and avoid a new hyperdeflation like what we saw in Germany many years ago?

Germany saw inflation for very, very specific reasons that have not been repeated since that time. Each nation, each economy all act differently, its neigh impossible to relate one to the other, especially through history. Can a Reserve bank control inflation through these means? That's why they do them .. the Dutch have a tiny economy and a minor currency. The USA and EUR have massive economies and major currencies, so the control mechanism wills hare an underlying theory, but the actual maneuvers are individualized.

reply to post by Rockpuck


Thanks for the answers they made some things more clear to me althou this seams kind of complicated.

So our companies will have trouble making revenue, because when they export they get foreign money which most likely is devaluating compared to DKr. (which is going the opposite direction). So unless the company can spend the foreign revenue faster than the market's evolve they are losing money. If the evolution on the market increase in speed, some companies could be foreced to stop exporting (no reason to give away good's). If that happens the country will generate less tax from companies, forcing them to tax other places?

I'm still not aware of how this will influence my personal economy. All i can see is that my credit rate has exploded last 3-4 months, but that's probably because i finally payed my last debt and not because of our currency.

I guess Germany wasn't the best example.

reply to post by Mimir


Easiest way to think about it:

If a corporation based in Denmark exports to the Euro Zone and generates x amount of profit, and the Euro devalues 5% against the Krone, then their x amount of Profit falls 5%. If the Krone were to devalue against the Euro 5% their profit would increase 5%.

While 5% movement in FOREX markets are rare, to give a good example from 1999-2011 the USD has devalued nearly 30% ... as you can see, our exporters are hurting. Central banks around the World are trying to keep currencies in equilibrium .. some countries like Canada, Denmark, Australia, Japan for example are trying to devalue their currency at a much faster rate as the USD and EUR implode.

It hurts Denmark especially because if a company is loosing profit from the currency (or at least appear to be loosing profit I should say) then they may HQ themselves somewhere more ... stable .. like anywhere within the EUR Zone instead of Denmark. It doesn't help having a strong currency while trying to attract business to your country.. investors like to see big profits. It's actually interesting to look through the largest EUR and USA corporations that export and see the profit just from currency exchanges. In the USA I believe Coca Cola has the largest profit from currency conversion. Not that they'd advertise that of course.

Originally posted by Mimir
Resently speculations about the union's stability is growing and there has been suggestions that would make other unions. One of these suggestions talk about the stronger countries like GB, Germany and scandinavian countries should make their own union. In spite of the cut on interest rate and investing in currencies our reserves still grew.

Actually Scandinavian countries already have their own union, it is called the "Nordic Union".
Also, GB has its own union, called the "United Kingdom and Commonwealth"

A little research goes a long way, takes 3 seconds on google.

Havn't you noticed that european member countries / states that have Monarchies also do not use the Euro?
Denmark, DKK
Sweden, SEK
Norway, NOK
UK, GBP

All monarchies.

The only exceptions that have monarchies that use the Euro I can think off is the Netherlands, Spain and Belgium and considering Belgium is the center of Europe it really has to use the Euro for symbolic reasons lol

reply to post by Bobbob


Luxembourg
Spain
Netherlands
Belgium
Vatican

And technically Andora has no currency, it uses whatever you have in your hand which is more oft than not a Euro. More Monarchies are EU members or use the EUR than not.. and all Monarchies have put to vote to join or not, their people being more intelligent opted not to.

reply to posts by Bobbob and Rockpuck


Yep.

Denmark voted against the Maastricht Treaty with 52% in 1992. Later Denmark ratified Maastrick after they got 4 exceptions with the Edinburg Agreement. One of those exceptions was to keep our currency.

I guess some of the other monarchies got similar agreements, like the UK who still got their currency.

In Portugal, Germany and the UK the oppinion polls shoed lack of support in the public, Germany and Portugal never had a referendum vote.

Maastricht was later updated with the Amsterdam- and Nice treaty, strenghtening the union (empire).

Lichtenstein also a monarchy inside the Eurozone, but they are not even a part of the union. Makes you wonder if the northen monachies is the core of the "new" union for stronger economies in Europe inviting a few other strong economies like Germany inside.

Originally posted by Mimir
reply to posts by Bobbob and Rockpuck

 

Yep.

Denmark voted against the Maastricht Treaty together with 52%. Later Denmark ratified Maastrick after they got 4 exceptions with the Edinburg Agreement. One of those exceptions was to keep our currency.

I guess some of the other monarchies got similar agreements, like the UK who still got their currency.

In Portugal, Germany and the UK the oppinion polls shoed lack of support in the public, Germany and Portugal never had a referendum vote.

Maastricht was later updated with the Amsterdam- and Nice treaty, strenghtening the union (empire).

Lichtenstein also a monarchy inside the Eurozone, but they are not even a part of the union. Makes you wonder if the monachies is the core of the "new" union for stronger economies in Europe inviting a few other strong economies like Germany inside.

edit on 5-9-2011 by Mimir because: (no reason given)

Lichtenstein is part of the union, they are an EEA member, that is far more than just trade, they can also align their laws, and can contribute militarly, financially and more just like Norway does, just like Iceland does and others.