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Central bank digital currency in Denmark?

The analysis concludes that central bank digital currency would not be an improvement of the existing payment solutions in Denmark. Central bank digital currency would fundamentally change Danmarks Nationalbank’s role in the financial system and make it a direct competitor to the commercial banks. The introduction would also lead to risks of financial instability. The potential benefits of introducing central bank digital currency for households and businesses in Denmark would not match the considerable challenges which this introduction would present. Danmarks Nationalbank therefore has no plans to issue central bank digital currency.


Central government borrowing strategy in 2018

The target for sales of domestic government bonds and T-bills in 2018 is kr. 65 billion and kr. 30 billion, respectively. This is unchanged from 2017. In 2018, a new index-linked bond will be opened, maturing in 2030. The focus will be on issuance in the existing 2-year and 10-year nominal bonds and in the new index-linked bond.


New primary dealer model continues in 2018

The central government's primary dealer model with enhanced requirements and payments has strengthened the market for Danish government securities. That is the background for maintaining the model with payments in 2018. The model has contributed to a more liquid market for government securities and hence to lower financing costs for the central government. Liquidity has been increased through narrower bid-ask spreads and a higher number of banks actively trading Danish government securities.


Resolution strategy for SIFI groups

This analysis supports Danmarks Nationalbank's recommendation that the principles for resolution of SIFI groups should be set to resolve the SIFIs as single entities in group strategies. The analysis also examines what the strategy means in relation to the special act on mortgage banks and the setting of requirements for eligible liabilities in the systemically important groups.


The central government will buy the bonds to finance social housing in 2018

When the 2018 Finance Act has been adopted, the central government will buy bonds to finance social housing. The central government expects to purchase bonds for kr. 42.5 billion in 2018. The bond purchases will be financed by issuance of government securities or by drawing on the central government's account. This results in the cheapest possible financing of social housing and the largest saving for the central government.


Danish households opt out of cash payments

Danes prefer digital payment solutions to cash. Digital payment solutions are chosen by the youngest Danes in particular, and many young Danes carry little or no cash. Thus, many Danes live more or less without using cash, and even more Danes are expected to live without using cash in the future. However, Denmark is not heading for a cashless society. Citizens who wish to hold cash will still have the option to do so in the future.


Risks are building up in the financial sector

There is a sentiment of optimism in the financial sector. Profits of the credit institutions are rising, and a considerable lending capacity has been built up. This increases credit institutions’ risk appetite, which is reflected in easing of credit standards. Several credit institutions are increasing lending to cyclical industries and to vulnerable households with high debt ratios. At the same time, rising house prices mean that credit growth may take off suddenly.


A few banks have capital shortfall in severe recession scenario

Danmarks Nationalbank's semiannual stress test of the banking sector shows that the largest banks are close to, and in some cases tap into, their buffer requirements in a severe recession scenario. The stress test focuses on market risk and the losses banks suffer due to falling stock prices, changes in interest rates and increasing credit spreads.


Extraordinarily high current account surplus is temporary

It appears from the analysis that the very high current account surplus is temporary. The surplus has been extraordinarily high since 2010 – also in comparison to the current business cycle. Corporations' net lending rose sharply in the wake of the financial crisis. Today the surplus mainly reflects high household savings. They save in order to reduce their debt. As consumption and investment increase, the current account surplus will be reduced.


Banks from more than 100 countries send payments via Kronos

The analysis describes how banks from all over the world safely and efficiently send Danish krone payments to each other via Danmarks Nationalbank's payment system, Kronos. Most Danish banks have an account at Danmarks Nationalbank and participate directly in Kronos, while many foreign banks participate indirectly through an account holder. It is important that the individual bank considers the risks that both direct and indirect participation entails.


Diffusion of new knowledge benefits firms' productivity

Productivity growth in the Danish economy since 1995 has been lower than previously. This reflects weak productivity growth in services, while manufacturing has maintained its strong momentum. The decline in productivity growth is an international trend. Growth in aggregate productivity is broad-based in Denmark. It is not only driven by a small group of high-productivity firms. This indicates diffusion of knowledge and technological advances. Productivity levels vary considerably across firms within the same industry.


The Faroese economy – Boom and labour market pressure

The Faroese economy is booming. Unemployment is low, and the construction sector, in particular, is reporting labour shortages. As in earlier boom periods, Faroese fiscal policy seems to be procyclical, with a resultant risk that the economy will overheat. The Faroese government should tighten the fiscal policy, and with the economy in good shape, now is a good time to address the long-term challenges of public finances.


Outlook for the Danish economy – Solid upswing with increased labour market pressure

The ongoing upswing in the Danish economy is solid, and the labour market pressure has increased. Growth in GDP is projected to rise to 2.3 per cent this year from 1.7 per cent last year, and the Danish economy will be in a boom in the coming years. So far, the upswing has been balanced. There is room for higher pressure on the economy during the boom, but overheating may occur suddenly and vigorously. The government should be prepared to initiate a fiscal tightening with a view to dampening growth in demand.


Once again labour shortage in construction

The share of construction firms reporting labour shortage has almost reached the level in the mid-00s. Experience testifies to labour shortage affecting all types of construction firms when labour market pressures are high. Further stimulation of demand for construction services would not be advantageous in the current cyclical position.


Housing taxation agreement stabilises house prices

The effects on house prices of the Housing Tax Agreement are analyzed. From 2021, housing taxes will again dampen fluctuations in house prices and thus economic cycles in general. Towards 2021, the agreement stimulates real estate prices outside the big cities, while lowering prices, e.g. on apartments in Copenhagen. Finally, it is shown that for most home buyers there is no financial incentive to advance home purchases to before 2021 just to ensure a tax reliefe.


Greenland Challenged Despite Strong Fisheries

Strong economic growth in Greenland in 2016 and 2017 is to a large extent attributable to fisheries. Rising building and construction investments have also boosted growth in Greenland's economy. Despite the good times, the Greenlandic politicians need to address a number of major challenges. It is difficult to combine a sound economy with independence.


Danish Government Debt Management Policy - Strategy announcement 2nd half of 2017

The target for issuance of domestic government bonds in 2017 is maintained at kr. 65 billion in order to increase the outstanding volume of new bonds and ensure continuity in issuance policy. The target for T-bills at year-end is also maintained unchanged at kr. 30 billion.


Optimism in the banking sector provides breeding ground for increased risk-taking

Danmarks Nationalbank's semiannual analysis of financial stability shows that the largest banking groups achieved their best ever overall performance in 2016 and the banks' financial statements for the 1st quarter of 2017 also recorded sound profits. The banks' earnings are underpinned by temporary effects from very low loan impairment charges. The economic upswing, rising house prices and the continued low level of interest rates may lead to a general perception of low credit risk. This may intensify the pressure on the banks' credit standards. The large banks comply with the current capital requirements, but their capital base is lower than that of other Nordic banks. Results from Danmarks Nationalbank's accounts-based stress test show that, in a severe recession scenario, few of the systemic banks will have a small capital shortfall relative to the buffer requirements.


Largest banks close to buffer requirements in stress test

Danmarks Nationalbank's semiannual stress test of the Danish banking sector shows that the largest banks generally have capital in excess of the regulatory requirements in a severe recession scenario. However, some banks are close to drawing on their capital buffers, and a few tap into their buffers.


Banks' capital accumulation does not hurt GDP growth

The capital ratios of Danish banks have increased in the years following the financial crisis. There are no adverse effects on GDP growth of banks' capital accumulation. This is the conclusion of Danmarks Nationalbank's analysis of banks' capital accumulation and GDP growth.


New Model has improved Liquidity in the Danish Government Securities Market

New primary dealer model is off to a good start with an improvement in liquidity. Price transparency has improved with narrower bid-ask spreads and increasing turnover in the interdealer market. All 11 primary dealers in Danish government bonds have quoted substantially tighter prices and the turnover is to a lesser degree than before concentrated on a few banks.


Denmark contributes to a strong IMF

The main objective of the International Monetary Fund, IMF, is to promote global economic and financial stability. A well-functioning IMF with sufficient funding is a prerequisite for solving this task. A strong IMF is a matter of Danish interest, as Denmark is a small, open economy and therefore highly dependent on and exposed to external conditions. Over the last decade Denmark, via Danmarks Nationalbank, has increased its total commitments to the IMF. Risks associated with loans to the IMF are extremely low due the high creditworthiness of the IMF.


Danes are Front-Runners in Electronic Payments

Danes prefer electronic payments, especially payment cards. In fact they use cards more than any other EU citizens. The electronic payments are supported by the payments systems which ensure that the payments are settled quickly and smoothly. E.g. it is possible to transfer funds in seconds. Denmark is a digital front-runner according to the European Commission's index. This is among other factors attributable to the targeted public-sector focus on digitisation.


Outlook for the Danish economy – Balanced recovery in the Danish economy

The Danish economy is in a balanced upswing and heading towards a moderate boom. Structural factors may dampen stronger dynamics and thus the growth outlook is more limited than previously. The growth in GDP is expected to increase to 1.6 per cent in 2017 from 1.1 per cent in 2016. The growth scenario in Danmarks Nationalbank's forecast assumes that labour supply will increase as a result of reforms already implemented. The growth scenario can be affected by a build-up of strong labour market pressure and the economy abroad including the US fiscal policy.


Higher Growth Figures Confirmed the Upswing

Statistics Denmark’s revised GDP figures published last autumn provide a more complete picture of the Danish economy as being in an upswing since 2012. However, the new figures do not change Danmarks Nationalbank’s assessment of the state of the Danish economy to any significant extent. Danmarks Nationalbank’s forecasts of GDP growth after the 2008-09 downturn was accurate. The GDP revision emphasises that assessments of current developments in the Danish economy cannot be based merely on GDP.


Cyber resilience in the financial sector

The core financial sector participants in Denmark have strong focus on cyber security, but there is room for improvement. That is the main conclusion of Danmarks Nationalbank's and the Danish Financial Supervisory Authority's questionnaire survey.


Enhanced Requirements and Payments are to strengthen the Danish Government Securities Market

From 1 April 2017, the central government is introducing payments to banks that quote prices on a current basis and act as distribution channels for Danish government bonds, i.e. function as primary dealers. Total payments will amount to a maximum of kr. 25 million p.a. The banks making the greatest efforts will receive the largest payments. At the same time, the requirements for primary dealers will be enhanced.


Too-big-to-fail can be solved inexpensively

Danmarks Nationalbank’s calculations show that the price of solving the too-big-to-fail issue for the Danish mortgage banks is low. Introduction of a minimum requirement for own funds and eligible liabilities, MREL, corresponding to 8 per cent of the mortgage banks’ total liabilities and own funds would justify an increase of administration margins by between 0.02 and 0.11 percentage point. An MREL would allow the mortgage banks to write down up to 8 per cent of their liabilities and own funds. Hence, the Resolution Fund can be used in the event of very large losses.