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Denmark Ready To Dump Kroner On Market To Tame Hedge Funds

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http://www.bloomberg.com/news/2015-01-22/denmark-cuts-key-deposit-rate-to-minus-0-35-to-drive-down-krone.html

Denmark sent hedge funds and other speculators a clear message yesterday, daring them to test the full force of its monetary arsenal at their own peril.

The central bank signaled it is ready to step up currency interventions and continue cutting rates to stamp out any lingering speculation it may be unable to defend its euro peg.

“We have plenty of kroner,” Karsten Biltoft, head of communications at the central bank in Copenhagen, said in a phone interview. “We have the necessary tools in terms of interest-rate changes and interventions and we have a sufficient supply of Danish kroner.”

The comments follow the central bank’s second rate cut in less than a week, with Governor Lars Rohde lowering the benchmark deposit rate to a record minus 0.35 percent yesterday. That was more than expected by economists surveyed by Bloomberg and followed a 15 basis-point cut on Monday. The easing comes as the European Central Bank unveiled an historic bond-purchase program that drove the euro lower.

Sounds like the central bank is goading an attack on the Krone, a dangerous game???

Come and have a go if you think your hard enough?

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Not much to see here really. Monetary easing in the Eurozone means that Denmark has to do the same thing if it wants to keep its currency at par with the Euro. This means lowering interest rates or creating more of their own currency. In that they do have unlimited fire-power, they're an independent central bank and can create as much of their currency as they like.

The only issue may be that this monetary stance is too loose for Denmark's economy. I don't know if this is the case, but if they were in the Eurozone, they would have exactly the same issue.

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The political establishment in Denmark are still determined to join the Euro, despite strong public opposition.

The events show that Denmark would be better off inside the euro area, Loekke Rasmussen said. The political case for membership is also clear, as policy makers in Copenhagen would have a seat at the table when the region’s monetary policy is set, he said.

Voter Gap

“We should be part of the euro,” Loekke Rasmussen said. “We’re de facto in it.” The challenge remains that “there’s such a gap between voters and the leadership that we wouldn’t be able to win such a vote.

The no-vote leads by a margin of about 30 percentage points, according to the most recent poll by Danske Bank A/S and Statistics Denmark, which was published in March. The country rejected euro membership in a 2000 referendum. Its central bank has since defended the krone’s peg to the euro, and before that to the deutschmark, starting in 1982.

Loekke Rasmussen says Denmark’s currency peg is backed by a broad majority in the parliament and among business leaders.

Democracy is soooo inconvenient.

http://www.bloomberg.com/news/articles/2015-01-27/euro-peg-non-negotiable-as-denmark-gives-up-on-krone-referendum

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market vs central bank

market wins

sometimes it is a long fight, but the bank can't win

No, only for small CBs. There are maybe 4-5 that the market will not try to take on IMO.

Surely the Danish situation is the same as the swiss. They can create many more krone with the touch of a key.

The problem is that that creates a potential future instability that they may find hard to control.

http://www.economist.com/blogs/economist-explains/2015/01/economist-explains-13

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market vs central bank

market wins

sometimes it is a long fight, but the bank can't win

Computational intractability. Markets are clearly stochastic some of the time, a computational hurdle in itself, but also dynamically complex in a way that's yet to be algorithmically defined (like evolution). In any case, there's no microeconomic basis for recommending Keynesianism, Socialism or Monetarism. The central banks don't even have a falsifiable theory of nonfinancial markets.

Emprically, things are no better: Keynesianism failed comprehensively in 1971. Socialism failed comprehensively in 1989. Monetarism failed comprehensively in 2008.

The post-2008 response appears entirely ad hoc - witness Carney's contradictory gyrations over forward guidance and the intermittent bouts of QE.

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If youre a small country running large surpluses trying to suppress currency CB will get taken out and shot eventually.

Keynes was 100% correct.

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Down down down and out.

http://www.bbc.co.uk/news/business-31154218

Denmark's central bank has cut its interest rates again, in an effort to keep the krone pegged to the euro.

It is the fourth time in three weeks that it has cut its key policy rate, dropping it to -0.75% from -0.5%.

The central bank has also intervened in the foreign exchange markets to the tune of $16bn to weaken the krone.

The bank said that it would continue its interventions with the aim of keeping the krone in a tight trading range against the euro.

Central Bank governor Lars Rohde said: "There is no upper limit to the size of the foreign exchange reserve.

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