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Banknotes and Coins in Circulation

In 1997 notes in circulation increased by kr. 1.9 billion to kr. 34.7 billion¹⁾ or by 5.7 per cent from 1996. This rate of increase corresponds to that of previous years. The number of banknotes rose by 2.2 million, or 2.0 per cent, cf. Table 6.

As in the preceding years the increase in notes in circulation corresponds to the growth in private consumption, which can be used as an indicator of growth in demand for cash for transaction purposes.

The development in the circulation of the different note denominations reflects the introduction of the 200-krone note. Quite naturally, the 200-krone note accounts for the greatest increase in notes in circulation, and at the end of 1997 200-krone notes for kr. 1.6 billion were in circulation.

Table 6 Note circulation and note consumption

The introduction of the 200-krone note has led to a considerable decrease in the circulation of 100-krone notes. A growing number of cash dispensing machines now pay out 200-krone notes instead of 100-krone notes. In quantitative terms the 100-krone note still dominates with a share of 52 per cent, while the value of 100-krone notes in circulation is only 18 per cent. 61 million 100-krone banknotes are in circulation.

The lifetime of banknotes normally increases with the note's denomination because the turnover rate for lower note denominations exceeds that for the higher denominations. The lifetime of a 50-krone note is normally around one year, whereas the lifetime of a 1,000-krone note is approximately three years. The lifetime of the banknotes is affected by the introduction of the new note series, however. In the period up to the issue of a  new series of banknotes the issue of new banknotes is reduced. Instead, old banknotes of a slightly poorer quality than normal are put into circulation. After the issue of the new series the notes in the old series are withdrawn on being returned to the Nationalbank, regardless of whether they are in good condition at that time. So first the banknotes' lifetime is extended and then it is shortened, without reflecting the actual wear and tear of the notes.

Pursuant to the Danmarks Nationalbank Act of 1936 the circulation of notes must be covered (funded) by the Nationalbank's reserves of gold and other assets, according to certain specific rules. However, since 1939 an exemption has been made from the gold-coverage provision under Section 13 of the Danmarks Nationalbank Act. Again in 1997 the Nationalbank's Board of Directors renewed the exemption, with the consent of the Royal Bank Commissioner.

In 1997 coin circulation increased by 6.0 per cent to kr. 3,631 million. As in the preceding years the 20-krone coin accounted for the greatest increase by value, whereas the 25-øre coin showed the largest increase in quantitative terms.

Table 7 shows the distribution of the coin circulation and coin production on the various coin denominations.

Queen Margrethe's silver jubilee on January 14, 1997 was marked with the issue of a commemorative coin, cf. the 1996 Annual Report.

Table 7 Circulation, production and withdrawal of coins in 1997

The Cash Supply

In 1990 the first cash depots were established with the purpose of supplying the local banks and post offices with cash or taking back their surplus cash holdings. Cash was supplied from 18 depots all over Denmark, except Zealand where the Nationalbank has administered the cash supply directly.

Under this scheme the depots were operated by the banks. Since the cash at the depots is not owned by the Nationalbank, but by the banks operating the depots, the Nationalbank grants an interest-free loan to each depot equivalent to its cash holdings. The depots' costs have been covered by the customers as handling charges for all deposits and withdrawals, and by the Nationalbank, which has paid an annual amount calculated on the basis of the insurance cover of the depot.

In 1997 the Nationalbank reviewed the cash supply system. This revision revealed some weaknesses, including that the depots have not exchanged cash supplies among themselves, that a number of banks have ordered cash from the Nationalbank rather than from the nearest cash depot and that cash transports on Zealand and the associated risk can be reduced if cash supplies to a greater extent are handled on a local basis.

After consultation with the banks the Nationalbank therefore decided to make a number of adjustments to the cash supply system, including the

establishment of cash depots on Zealand and a reduction of the Nationalbank's cash handling. The Nationalbank's servicing of the depots will be limited to issuing new banknotes and coins and receiving rejected banknotes and coins. The depots will service the banks in the local area, including cash dispatched by mail. Since in future a larger proportion of cash flows will not involve the Nationalbank the banks will to a greater extent also handle the note-sorting previously carried out by the Nationalbank.

The Nationalbank will continue to grant interest-free loans to the depots, but under the new system collateral must be furnished for the loans. The costs of the depots will be financed by charges for deposits and with- drawals.

The adjustment of the cash depot system commenced in the spring of 1998 with the establishment of four depots in the Copenhagen area. The system is expected to be expanded with a further 1-2 depots on Zealand. The need for new cash depots will be evaluated on an ongoing basis.

Cash supply in Greenland is handled via a cash depot in Nuuk. Cash supply on the Faroe Islands, which uses its own banknotes, but Danish coins, is handled via "Rigsombudet", the representative on the Faroe Islands of the Danish Prime Minister's Office.

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