Contents

FOREWORD

REPORT OF THE BOARD OF GOVERNORS

SUMMARY

THE DANISH ECONOMY
International background
The Danish economy
Wage and price trends
Credit expansion
Economic prospects

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

FINANCIAL MARKETS
Interest rates
Foreign-exchange markets
Stock markets

THE DOMESTIC FINANCIAL SYSTEM
Banks
Mortgage-credit institutes
Investment associations
Pension companies
The bond market
Agreement on new capital-adequacy rules in the EU
Himmerlandsbanken
Memoranda of Understanding

BANKNOTES AND COINS
Banknotes and coins in circulation
Upgrading of banknotes
New banknote series
Counterfeit banknotes
Fairy tale coins
Tower coins
2005 coin set
Faroese banknote series

PAYMENT SYSTEMS
Development in payment and settlement systems
Oversight
Infrastructure for krone-denominated payments
Infrastructure for euro-denominated payments

INTERNATIONAL MONETARY COOPERATION
Period of reflection in the EU
Non-EMU member states
Future enlargements of the EU
The Stability and Growth Pact
Discussion of the IMF's future development
Debt relief from IMF to poor countries
Lending by the IMF
The IMF's macroeconomic and financial surveillance of Denmark

ORGANISATION AND TASKS OF DANMARKS NATIONALBANK
Danmarks Nationalbank's objectives and values
Danmarks Nationalbank's management
Departments
Staff
Lectures
Other initiatives in 2005
Representation on committees, etc.
Representation in international organisations
Danmarks Nationalbank's Anniversary Foundation of 1968
Danmarks Nationalbank's guest apartments at Nyhavn 18
The Erik Hoffmeyer Travel Grant Foundation

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

DANMARKS NATIONALBANK'S ACCOUNTS FOR THE YEAR 2005
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. Contribution to growth
3. The balance of payments
4. Wage increases in Denmark and abroad
5. Nominal and real effective krone rates
6. Increase in consumer prices and IMI
7. Growth in lending by banks and mortgage-credit institutes
8. Borrowing by households from Danish banks and mortgage-credit institutes
9. Krone vis-à-vis euro
10. The ECB's interest rates and short-term money-market interest rate in the euro area
11. Lending rates of the ECB and Danmarks Nationalbank
12. Capital imports related to portfolio investments
13. Net position of the monetary-policy counterparties vis-à-vis Danmarks Nationalbank
14. Interest-rate spreads to the euro area in the money market
15. The discount rate and the bank's average lending rates
16. 10-year yields in the USA, the euro area, Japan and the UK
17. 10-year yield spreads to the euro area
18. Credit spreads for bonds from the euro area
19. Dollar and yen vis-à-vis euro
20. Pound sterling, Norwegian krone and Swedish krona vis-à-vis euro
21. Stock indices for the USA, the euro area, the UK and Japan
22. Stock indices for Denmark, Sweden and Norway
23. Annual growth in deposits and lending
24. Assets of investment associations by fund type, year-end
25. Premature redemptions of mortgage-credit bonds and bond yields
26. Banknotes in circulation
27. Counterfeit banknotes found in circulation
28. Estimated budget deficit and debt in EU member states in 2005
29. Outstanding IMF lending, year-end
30. Gold price and exchange rates

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. Lending to residents by mortgage-credit institutes by loan type
5. Outstanding volume of listed domestic krone-denominated bonds, nominal value
6. Payments in kroner
7. Payments in euro
8. Staff turnover rate
9. Staff groups
10. Interest-rate exposure of Danmarks Nationalbank
11. Foreign-exchange exposure of Danmarks Nationalbank
12. Danmarks Nationalbank's value-at-risk
13. Danmarks Nationalbank's loss in stress scenarios, end-2005
14. Total credit exposure on the foreign-exchange reserve and the domestic securities portfolio, etc., end-2005

Boxes

1. The international development in housing prices
2. Description of the current-account-limit system
3. Danmarks Nationalbank's monetary-policy instruments
4. Revaluation of the Chinese currency
5. Oil and petrol prices and energy-related stocks 2005
6. Fairy tale coins
7. Tower coins
8. Coin set for children
9. The complete Faroese banknote series
10. Exchange-rate regimes and target dates for euro area membership for non-EMU member states
11. Overview of significant amendments to the Pact
12. The IMF's medium-term strategy
13. The Multilateral Debt Relief Initiative, MDRI
14. Overview of IMF visits to Denmark in 2005 and 2006
15. The Board of Directors of Danmarks Nationalbank, 1 March 2006
16. The Committee of Directors of Danmarks Nationalbank, 1 March 2006

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 mortgage-credit institutes' net position with Danmarks Nationalbank
      6.    Money stock
      7.    The official interest rates of Danmarks Nationalbank
      8a.  The official interest rates of the European Central bank
      8b.  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 2005 At the meeting of the Board of Directors held on 20 March 2006 the Board of Governors reported on the activities of Danmarks Nationalbank. The report was noted. Danmarks Nationalbank's accounts for 2005 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 2006. The small picture on the front cover is a section of the fairy tale coin "The Little Mermaid", which is the second coin in a series of five with fairy tales as their common theme. The motif was designed by the sculptor Tina Maria Nielsen. 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 2005 is also available on request from:    Danmarks Nationalbank    Information Desk    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