Contents

FOREWORD

REPORT OF THE BOARD OF GOVERNORS

SUMMARY

THE DANISH ECONOMY
International background
The Danish economy
Economic prospects

MONETARY AND FOREIGN-EXCHANGE POLICY
The framework for the fixed-exchange-rate policy
The ECB's monetary policy
The monetary and foreign-exchange policy of Danmarks Nationalbank
The money market and short-term interest rates

FINANCIAL MARKETS
Interest rates
Foreign-exchange markets
Stock markets

THE DOMESTIC FINANCIAL SYSTEM
Banks
Mortgage-credit institutes
Investment associations
The bond market
Business continuation
Report on the stock market in a globalisation context

BANKNOTES AND COINS
Banknotes and coins in circulation
Counterfeit banknotes
New Danish banknote series
The Faroe Islands and Greenland
Increasing activity at The Royal Mint
New thematic coins in 2007
Coin set 2006
The Royal Mint has its own website

PAYMENT SYSTEMS
Danish payment and settlement systems in 2006
Pledging of collateral for credit facilities at Danmarks Nationalbank
Oversight
IMF assessment of Danish payment and settlement systems
Target2
Retail payments
Securities
Settlement of foreign-exchange transactions

INTERNATIONAL MONETARY COOPERATION
Enlargement of the EU
Slovenia joins the euro area
The Stability and Growth Pact
The IMF's reform process results in changed voting weights
Focus on the IMF's macroeconomic and financial surveillance
Decline in the IMF's lending

ORGANISATION AND TASKS OF DANMARKS NATIONALBANK
Danmarks Nationalbank's objectives and values
Danmarks Nationalbank's management and organisation
Departments
Organisation chart 1 March 2007
Staff
Operation and management
Danmarks Nationalbank's buildings
Lectures
Representation on committees, etc.
Representation in international organisations
Foundations and guest apartments

RISK MANAGEMENT
Operational risk
Danmarks Nationalbank's management of financial risks

DANMARKS NATIONALBANK's ACCOUNTS FOR THE YEAR 2006

REPORT ON DANMARKS NATIONALBANK's ACCOUNTS
Presentation of Danmarks Nationalbank's accounts

APPENDIX

Press releases
Danmarks Nationalbank's publications
Danish bank holidays other than Saturdays and Sundays

APPENDIX OF TABLES

Charts

1. Growth in the gross domestic product, GDP
2. Monetary-policy interest rates
3. Unemployment
4. Wage increases in Denmark and abroad
5. Increase in consumer prices and IMI
6. Growth in lending by banks and mortgage-credit institutes
7. Nominal and real effective krone rates
8. Balance of trade and balance of payments
9. Krone vis-à-vis euro
10. Monetary-policy interest rates in Denmark and the euro area
11. Portfolio investments and the krone rate
12. Short-term interest-rate spreads to the euro area
13. Danmarks Nationalbank's discount rate and the banks' average deposit and lending rates
14. 10-year yields in the USA, the euro area, Japan and the UK
15. Yield curves in the USA and the euro area, beginning and end of 2006
16. 10-year yield spreads to Germany
17. Dollar vis-à-vis euro
18. Pound sterling, Norwegian krone and Swedish krona vis-à-vis euro
19. Stock indices for the USA, the euro area and Japan
20. Stock indices for Denmark, Sweden and Norway
21. Annual growth in deposits and lending
22. Assets of investment associations by fund type, year-end
23. Premature redemptions of mortgage-credit bonds and bond yields
24. Banknotes and coins in circulation, private consumption and GDP
25. Banknotes in circulation
26. Counterfeit banknotes found in circulation
27. Member states subject to the excessive deficit procedure at end-2006
28. IMF lending and Denmark's reserve position
29. Distribution by seniority and gender
30. Danmarks Nationalbank's Value-at-Risk
    

Tables in the text

1. Key figures for the Danish economy
2. The Danish labour market
3. Intervention by Danmarks Nationalbank in the foreign-exchange market
4. Impact of various factors on the net position of the banks and mortgage-credit institutes vis-à-vis Danmarks Nationalbank
5. Lending to residents by mortgage-credit institutes by loan type
6. Outstanding volume of listed domestic krone-denominated bonds, nominal value
7. Payments in kroner
8. Payments in euro
9. Staff groups
10. Interest-rate exposure of Danmarks Nationalbank
11. Foreign-exchange exposure of Danmarks Nationalbank
12. Total credit exposure on the foreign-exchange reserve and the domestic securities portfolio, etc., end 2006
    

Boxes

1. Wages, productivity and competitiveness
2. Maturity of the monetary-policy instruments and fluctuations in the overnight interest rate in the money market
3. Danmarks Nationalbank's monetary-policy and foreign-exchange-policy instruments and operations
4. The Icelandic krona was under pressure in 2006
5. The unrest in the stock markets in May 2006
6. Fairy tale coins
7. Tower and Polar coins
8. The financial infrastructure in Denmark
9. Adjustment of member countries' voting weights in the IMF
10. The Board of Directors of Danmarks Nationalbank, 1 March 2007
11. The Committee of Directors of Danmarks Nationalbank, 1 March 2007
12. Model for Danmarks Nationalbank's long-term earnings and risk
    

Appendix of Tables

      1.    Annual accounts and monthly balance sheets of Danmarks Nationalbank
      2.    Specification of banknotes in circulation
      3.    Specification of coins in circulation
      4.    Loans financing decentralised banknote holdings
      5.    The banks' and the mortgage-credit institutes' net position with Danmarks Nationalbank
      6.    Money stock
      7.    The official interest rates of Danmarks Nationalbank
      8 a  The official interest rates of the European Central bank
      8 b  Eurosystem monetary-policy operations allotted through tenders
      9.    The foreign-exchange reserve
    10.    Denmark's account with the International Monetary Fund
    11.    Central rate and fluctuation band vis-à-vis euro in ERM II
    12.    Exchange rates

REPORT AND ACCOUNTS 2006 At the meeting of the Board of Directors held on 19 March 2007 the Board of Governors reported on the activities of Danmarks Nationalbank. The report was noted. Danmarks Nationalbank's accounts for 2006 were submitted by the Board of Governors for adoption on the recommendation of the Committee of Directors. The Board of Directors and the Royal Bank Commissioner accepted the recommendation. This Report is based on information available up to 2 March 2007. The interest-rate decisions of the European Central Bank and Danmarks Nationalbank on 8 March 2007 is included, however. The small picture on the front cover is a section of the tower coin "Three Brothers", which is the ninth coin in a series of ten coins with towers as their common theme. The motif was designed by the Greenlandic artist Niels Motzfeldt. Text may be copied from this publication provided that Danmarks Nationalbank is specifically stated as the source. Changes to or misrepresentation of the content are not permitted. The Report and Accounts is available on Danmarks Nationalbank's website: www.nationalbanken.dk under Publications and can be ordered by filling in the form on Danmarks Nationalbank's website. The Report and Accounts 2006 is also available on request from: Danmarks Nationalbank Communications Havnegade 5 DK-1093 Copenhagen K Telephone: (+45) 33 63 70 00 (direct) or (+45) 33 63 63 63 Office hours: Monday-Friday 9.00 am-4.00 pm. E-mail: info@nationalbanken.dk Explanation of symbols: - Magnitude nil 0 Less than one half of unit employed • Category not applicable … Data not available Details may not add because of rounding. Datagraf, Auning A/S ISSN 1397-520x ISSN (Online) 1398-3849