MONETARY POLICY

Greenland enters, like the Faroe Islands, into a monetary union with Denmark. The National Bank of Denmark is responsible for the monetary policy in the union.

The goal of the monetary policy is to ensure a stable exchange rate of Danish kroner against the Euro. The anchor for the exchange rate policy is the so-called central parity against the Euro at DKK 746,038 for 100 Euros. Deviations of +/- 2,25 per cent from the central parity are allowed.

The developments in the actual exchange rate against the Euro appear in Figure 1.

Figure 1

Exchange Rates of Danish Kroner Against the Euro

Source: The National Bank of Denmark

The exchange rates of other currencies in the world, primarily US dollars, yen, and pounds, are determined by market forces. Developments in these currencies play a major role for the prices at which the exports of Greenland such as fish and shellfish can be sold abroad (the competitive power) and the prices at which oil can be imported.

Figure 2

Index for the Exchange Rate of Kroner Against Dollars, Pounds, and Yen

Source: The National Bank of Denmark

Iceland is a Nordic economy not having a fixed rate policy against the Danish krone. Iceland experienced a boom in the years from 2003 to 2006. From early 2006, a distrust of the Icelandic economy arose, however, and since then the Icelandic krona has decreased significantly.

Figure 3

Exchange Rates for Icelandic Kroner

Source: The National Bank of Denmark

Link

Read more about the National Bank of Denmark and its monetary policy at www.nationalbanken.dk.