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Special Situation: EUR/DKK, another pegged currency rate

What happened in Swiss this past week brought my attention to another pegged currency: the Danish Krone.

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The krone is pegged to the euro via the ERM II. This goes back to 1992 and the creation of the euro. At that time, Danish people did not want to become part of Europe and this led to Denmark retaining the krone.

However, the political establishment in Denmark was essentially pro-euro, hence they pegged their currency to the euro. Right now Denmark’s economy is in much better shape than the Eurozone.

This fact may mean that maintaining the peg is not worth the hassle of building up huge amounts of foreign reserve…If the peg is released expect a shift double digit % move in the cross rate.

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