Danmarks Nationalbank's balance sheet

Danmarks Nationalbank's balance sheet consists of a long range of assets and liabilities reflecting the extent of the monetary policy operations. The balance sheet expresses the fixed rate policy regime as well as the central government's liquidity position since Danmarks Nationalbank acts as the central government's primary banking connection.

​Apart from the central government, most banks in Denmark have a current account at Danmarks Nationalbank. These banks are also known as the monetary policy counterparties. The banks' involvement with Danmarks Nationalbank can be summarized by the net position, which is derived by the sum of current-account deposits and certificate of deposits less monetary policy loans. The net position can only be affected by transactions involving either Danmarks Nationalbank or the central government. Transactions between banks will only affect the composition of current-account deposits, certificate of deposits and potential loans.

Foreign-exchange reserves are matched by the central-government account and bank deposits
Danmarks Nationalbank's assets are comprised primarily of the foreign-exchange reserve and a legacy portfolio of domestic securities, cf. chart below. At end of June 2020, the foreign exchange reserve totaled kr. 456 billion mainly consisting of deposits in foreign banks and holdings of foreign securities and gold. The portfolio of domestic securities totaled kr. 33 billion held in Danish short-term mortgage bonds.

The liabilities of Danmarks Nationalbank consist largely of the central-government account and bank deposits. At end of June 2020, the central-government account amounted kr. 170 billion. The central-government account is used for receipts and outlays, e.g. income tax, value-added tax or unemployment benefits. The monetary counterparties held deposits totaling kr. 150 billion distributed on current-account holdings of kr. 27 billion and certificate of deposits of kr. 123 billion. Simultaneously, the banks had taken up monetary policy loans amounting kr. 4 billion resulting in a net position of kr. 146 billion.

In addition, banknotes and coins in circulation totaled kr. 73 billion, while Danmarks Nationalbank's own capital amounted kr. 80 billion.

Danmarks Nationalbank's balance sheet at end of June 2020

Note:    The foreign-exchange reserve is comprised of foreign net claims and claims on IMF as well as the holdings of gold. The net position of the banks is defined as the sum of the current account and holdings of certificate of deposits less monetary policy loans. Balances in connection to swap agreements with other central banks are calculated net, thus not included.
Source:  Danmarks Nationalbank.

The size of the foreign-exchange reserve is mainly a result of monetary policy
Danmarks Nationalbank buys and sells foreign currency to ensure a stable exchange rate vis-à-vis the euro. If the demand for Danish kroner increases Danmarks Nationalbank can accommodate this by selling kroner and buying euro. The transaction implies that the foreign-exchange reserve rises simultaneously increasing the banks' deposits at Danmarks Nationalbank either in the form of an increase in current accounts, larger holdings of certificate of deposits or fewer monetary policy loans.

Reversely, if the demand for foreign currency increases Danmarks Nationalbank can meet this increase by selling foreign currency and buying Danish kroner. This was for instance the case in March 2020 where Danmarks Nationalbank sold foreign currency corresponding to kr. 65 billion to accommodate increased demand, thus reducing the foreign-exchange reserve and equivalently reducing the banks' deposits at Danmarks Nationalbank, cf. chart below. 

Danmarks Nationalbank sold foreign currency against kroner in March 2020

Note:    Changes due to other transactions are excluded for simplicity. In March 2020, the central government issued foreign-currency debt totaling around kr. 9 billion while Danmarks Nationalbank's own capital was credited roughly kr. 6 billion as a result of previous year's financial result.
Source:  Danmarks Nationalbank.

The central government's foreign-currency borrowing can affect the foreign-exchange reserve
The central government's borrows in foreign currency mainly to strengthen the foreign-exchange reserve. The central government can, however, issue short-term foreign-currency loans to rapidly increase the central-government account. This will take place through the central government's commercial-paper programs. When the central government raises loans in foreign currency, the proceeds are typically exchanged with Danmarks Nationalbank.

From March to June 2020, the central government issued short-term loans in foreign currency corresponding to approximately kr. 100 billion net of redemptions. This was done in order to secure financing for the central government's aid packages related to the outbreak of Covid-19. The proceeds in foreign currency were exchanged to Danish kroner with Danmarks Nationalbank, thereby increasing the central-government account and equivalently adding to the foreign-exchange reserve, cf. chart below. Note that the sum of deposits held by banks was unchanged. First when the government decides to draw on its account will there be redistribution from the central-government account to the current accounts of the banks. 

Illustration: Central-government issuance of foreign-currency debt in March-June 2020

Note:    For illustrative purpose, foreign-currency loans in March amounting to kr. 8.7 billion is only included in the foreign-exchange reserve for end of June 2020. Changes as a result of other transactions are excluded on account of simplicity.
Source:  Danmarks Nationalbank.

Central-government receipts and outlays affect the deposits held by banks
The central-government account at Danmarks Nationalbank is determined the flow of receipts and outlays as well as central-government borrowing. When the central government receives payment of e.g. income taxes the banks' deposits at Danmarks Nationalbank are equivalently reduced, cf. chart below, thereby leaving the assets of Danmarks Nationalbank unchanged. It is solely a redistribution of liabilities between the central government and the banks. Reversely when the central government pays public salaries, pensions or grants then the banks' deposits will increase while the central-government account is reduced.

The central-government account at Danmarks Nationalbank is affected in similar fashion by the central government's borrowing. When the central government sells government bonds the central-government account is credited with the proceeds while the banks' deposits are reduced equivalently and vice versa. 

Illustration: Payment of kr. 50 billion in income taxes

Note:    Danmarks Nationalbank's balance sheet end of June 2020.
Source:  Danmarks Nationalbank.
The net position is unaffected by transactions between banks and non-financial companies
The net position is the sum of deposits held by banks at Danmarks Nationalbank less their monetary policy loans. In turn, this implies that lending from one bank to another, financed by drawing on the current account of the lending bank, merely is a redistribution of individual net position leaving the total net position unchanged. This is also the case when a bank finances loans to non-financial companies by reducing its current account at Danmarks Nationalbank. The loan proceeds are transferred to the current account of the borrowing company's bank and the total net position is unchanged.
Illustration: Bank lending financed by drawing on the current account

Source:  Danmarks Nationalbank.

Less demand for cash increases the net position
When Danmarks Nationalbank delivers cash, i.e. banknotes and coins, to a bank a corresponding amount is drawn on their current account and vice versa. Therefore changes in demand for banknotes and coins affect the net position of banks though changes in payment behavior typically happen over longer periods, cf. Danes are front'runners in electronic payments.

For example lower economic activity or the introduction of new means of payments can imply a reduction in the demand for cash. Over time, this will result in lower banknotes and coins in circulation since banks return more banknotes and coins than they receive. All else equal, this increases the banks' deposits at Danmarks Nationalbank and, in turn, the net position. 

Illustration: Reduction in circulating banknotes and coins of kr. 25 billion

Source:  Danmarks Nationalbank.


More information

Each month on the second banking day at 17.00 CET, Danmarks Nationalbank publishes its balance sheet for the previous month.

The balance sheet is also included in the statistical publication 'Specification of Danmarks Nationalbank's balance sheet'.

Specification of Danmarks Nationalbank's balance sheet