Report of the Board of Governors
Summary
The outcome of the referendum held on 28 September 2000 was the rejection of Denmark's adoption of the single
currency. The referendum, which was announced in March, affected the activities of Danmarks Nationalbank.
Immediately after the referendum Denmark's Government and Danmarks Nationalbank stated in a joint press release
that the fixed-exchange-rate policy would be maintained within the framework of the EU's exchange-rate system, ERM
II.
As a consequence of the fixed-exchange-rate policy the interest rates of Danmarks Nationalbank are adjusted in step
with those of the European Central Bank, ECB, with due consideration of the conditions in the foreign-exchange
market. In 2000 Danmarks Nationalbank raised its interest rates on several occasions following interest-rate increases
by the ECB. It was also necessary to widen the differential between the interest rates of the Nationalbank and the ECB
since there was a certain outflow of foreign exchange and an underlying tendency for the krone to weaken in
considerable periods of the year.
In the time up to the referendum short-term money-market interest rates rose significantly, but with no actual
foreign-exchange unrest.
In order to avoid uncertainty concerning the krone rate after the referendum, the Nationalbank raised the lending rate by
0.5 per cent on 29 September. In the ensuing period the krone strengthened against the euro and the outflow of foreign
exchange was reversed to an inflow. Moreover, interest-rate conditions in the Danish money market normalised.
Against this background, the Nationalbank gradually lowered the lending rate, whereby the interest-rate differential to
the euro area narrowed from 0.95 per cent at the end of September to approximately 0.55 per cent at the end of
February, measured against the ECB's marginal interest rate.
A factor contributing to the krone's weakening in certain periods of 2000 was the large net purchases of foreign
securities by resident investors. Even though the foreign-exchange market generally absorbed these considerable capital
flows without significant problems, the Nationalbank had to sell foreign exchange for a net amount of kr. 38 billion in
2000, in order to dampen the fluctuations in the krone rate.
Long-term bond yields in Denmark fell in 2000, following the international trend for interest rates.
Up to the end of October 2000 the dollar strengthened further against the euro in view of the stronger economic growth
in the USA than in the euro area. In the autumn the ECB, and in one instance also other central banks, intervened in the
foreign-exchange market in support of the euro. In conjunction with the signs of a slowdown in the US economy, this
strengthened the euro significantly at the end of the year. Nonetheless, the euro fell by 7 per cent against the dollar in the
year overall.
The economic growth of Denmark's trading partners is estimated at 3.4 per cent in 2000. The upswing in the USA
continued into the first half-year and growth in the euro area accelerated. Together with rising energy prices this entailed
greater inflationary pressure and the tightening of monetary policy in the USA and the euro area. However, in view of
the strong dampening of economic growth in the USA at the end of the year, American monetary policy was eased in
January 2001.
Denmark's gross domestic product, GDP, is estimated to have risen by 2.5 per cent in 2000. Private consumption
stagnated, while exports, and especially investments, rose.
The current-account surplus was kr. 19 billion, i.e. 1.5 per cent of GDP, and was thus maintained at the 1999 level.
The weak development in private consumption helped to sustain the growth in exports. A good rate of growth in
Europe and a declining effective krone rate also supported exports. The growth in imports must be considered in the
light of the expansion of business investments.
After falling continually since 1994 unemployment levelled off in 2000. The rate of wage increase for the year as a
whole was 3.7 per cent, which was below the rate of increase in 1999. However, wage increases in Denmark are still a
little higher than in the euro area. An increasing supply of labour would make it easier to ensure a continuing expansion
of activities and living standards without higher wage increases.
Inflation was 2.7 per cent in 2000, and thus higher than the inflation rate of 2.3 per cent in the euro area. Rising prices
for energy, imports and public services contributed to overall inflation.
The fixed-exchange-rate policy also imposes certain requirements on fiscal policy. The labour market is tight and price
and wage increases are a little higher than the price and wage-increase rates in the euro area. In view of the prospect of
relatively strong growth in government consumption in 2001 there is no scope for further relaxation of fiscal policy in the
next few years.
The banks' financial statements presented a sound surplus. Activity in the mortgage-credit sector dampened to a
degree, due to such factors as a decrease in re-mortgaging activities. There was a large increase in the capital managed
by the Investment associations.
In the spring of 2000 Danmarks Nationalbank entered into a cooperation agreement with Statistics Denmark and at the
same time gained formal access to collate financial statistics as authorised by an amendment of the Act on Statistics
Denmark. The Nationalbank was thereby given the responsibility to further develop the Danish financial statistics.
In April 2000 Danmarks Nationalbank issued a commemorative coin to mark the 60th birthday of Queen Margrethe II.
Had Denmark decided to adopt the euro, the Nationalbank would have been required to undertake extensive
restructuring measures within a very short period. For this reason, prior to the referendum an internal EMU contingency
plan was drawn up, identifying a number of projects, primarily related to IT, which the bank would be required to
implement in the event of Denmark adopting the euro.
The Nationalbank's accounts for 2000 show a profit of kr. 5.7 billion, against kr. 1.5 billion in 1999. The improvement
in profits is primarily related to positive value adjustments, in contrast to 1999, when this item was negative. In
accordance with the customary practice for allocation of profits the value adjustments of kr. 1.3 billion are transferred
to the Value Adjustment Reserve. An amount of kr. 1.3 billion, equivalent to 30 per cent of the profit for the year
before value adjustments, is allocated to the General Reserves. The remainder of kr. 3.1 billion is payable to the central
government.
| 
