Memes

Yeah. It's another form of creation of money. It's a useful tool for some things, like the central bank being able to control interest rates in the economy, as shown during the recent inflationary episode.

Yes more or less, that is indeed how the central bank creates money most of the time; the government creates a piece of paper that says “IOU 100k and I’ll pay you 5% interest on it for 20 years and then I’ll return your original 100k to you in 20 years” (that’s a bond), which they sell on the open market, at auction (where the variable element is the interest rate someone is willing to accept). When the central bank wishes to increase the money supply they buy government bonds on the open market (ie from other holders, rarely from the government directly) by materialising money out of thin air.

When they wish to shrink the money supply they sell their government bonds and destroys the money that they receive from the sale.

Denmark has not introduced the euro, following a rejection by referendum in 2000, but the Danish krone is pegged closely to the euro (with the rate 7.46038±2.25%) in ERM II, the EU's exchange rate mechanism.

So if euro gets stronger, so does the krone. If euro drops, so does the krone.

<giggle.gif>

Not really. They’ve got a version of the euro, called kroners, which allows Danes to believe they have their own currency. They are locked into an exchange rate band (extremely tight) which means the Danish central bank has to follow every decision the ECB takes within minutes). And this makes complete sense, in that it’s a compromise that’s edible by voters (maintaining the illusion that Denmark didn’t adopt the euro) and edible by business (allowing businesses in Denmark to participate fully in the common market).

And that’s one of the reasons Denmark has such small national debt and runs a government surplus - they can’t really invent new money because it would break the bond with the euro. So the Danish budget is sort of a “household budget” in that in contrast to, say, Sweden, they cannot create money (meaningfully) and the books have to balance (which they do; lots of oil, Novo Nordisk, Maersk, Vestas and a few other big international plays who still pay a majority of their tax in Denmark obviously helps a lot).