4 ms·

DKK is pegged with the euro at 7.46, it's just a currency in name.

by axlee 3y ago

woleium 3y ago
Someone has to pay to maintain that peg
madsbuch 3y ago
It is soft pegged and has leeway. This is, btw, exactly the reason why the interest rates are pushed down as a consequence of Novo having success. If the Danish central bank did not need to maintain this peg, they'd probably just let the value of the DKK increase relative to the USD – instead this manifests as more expensive housing in Denmark as the interest rates are kept artificially low.
- MichaelZuo 3y ago
  > If the Danish central bank did not need to maintain this peg, they'd probably just let the value of the DKK increase relative to the USD – instead this manifests as more expensive housing in Denmark as the interest rates are kept artificially low. Assuming the majority of purchasers of Danish housing are made by those who are paid in DKK, so this is in fact keeping the prices low.
  - madsbuch 3y ago
    > Assuming the majority of purchasers of Danish housing are made by those who are paid in DKK, so this is in fact keeping the prices low. When the cost of servicing a mortgage goes down, the price will go up. How do you support that prices should go down?
    - MichaelZuo 3y ago
      Because if the value of 1 DKK relative to a euro declines, they will need to spend more on imported goods, travel, etc., and therefore less income for a potential mortgage.
      - madsbuch 3y ago
        I don't think you entirely understand the situation. The DKK is pegged to the EUR at 750 +- some percent. This means that the Danish central bank has large foreign currency reserves to adjust the value of the DKK when trade create imbalances. As I wrote: > It is soft pegged and has leeway. > This is, btw, exactly the reason why the interest rates are pushed down as a consequence of Novo having success. Currently the Danish central bank runs with an interest rate that is lower than the EUR-zone to protect this peg. Ie. it is cheaper to borrow money in Denmark and the DKK/EUR rate is constant. The reason that it is actually not more expensive to buy housing in Denmark is because of the rather unique martgage system we have (we trade mortgage bonds directly in the market) and laws regarding vacant housing (it can not stay vacant).
        MichaelZuo 3y ago
        I was commenting on the possible outcome of the DKK moving off peg and declining in value? Have you misunderstood what that menas?
friend_and_foe 3y ago
Ok but look at what they have to do to maintain the peg. It requires active management by teams of experts and government employees and massive amounts of capital reserves, just because the country contains a business that sells products to America. This is a symptom of the coincidence of wants problem, except between economies under national currencies rather than individuals, a problem you would not have if either globalization were not a fact or national currencies did not exist.

DKK is pegged with the euro at 7.46, it's just a currency in name.

by axlee 3y ago

DKK is pegged with the euro at 7.46, it's just a currency in name.

woleium 3y ago

Someone has to pay to maintain that peg

madsbuch 3y ago

It is soft pegged and has leeway. This is, btw, exactly the reason why the interest rates are pushed down as a consequence of Novo having success. If the Danish central bank did not need to maintain this peg, they'd probably just let the value of the DKK increase relative to the USD – instead this manifests as more expensive housing in Denmark as the interest rates are kept artificially low.

MichaelZuo 3y ago
> If the Danish central bank did not need to maintain this peg, they'd probably just let the value of the DKK increase relative to the USD – instead this manifests as more expensive housing in Denmark as the interest rates are kept artificially low. Assuming the majority of purchasers of Danish housing are made by those who are paid in DKK, so this is in fact keeping the prices low.
- madsbuch 3y ago
  > Assuming the majority of purchasers of Danish housing are made by those who are paid in DKK, so this is in fact keeping the prices low. When the cost of servicing a mortgage goes down, the price will go up. How do you support that prices should go down?
  - MichaelZuo 3y ago
    Because if the value of 1 DKK relative to a euro declines, they will need to spend more on imported goods, travel, etc., and therefore less income for a potential mortgage.
    - madsbuch 3y ago
      I don't think you entirely understand the situation. The DKK is pegged to the EUR at 750 +- some percent. This means that the Danish central bank has large foreign currency reserves to adjust the value of the DKK when trade create imbalances. As I wrote: > It is soft pegged and has leeway. > This is, btw, exactly the reason why the interest rates are pushed down as a consequence of Novo having success. Currently the Danish central bank runs with an interest rate that is lower than the EUR-zone to protect this peg. Ie. it is cheaper to borrow money in Denmark and the DKK/EUR rate is constant. The reason that it is actually not more expensive to buy housing in Denmark is because of the rather unique martgage system we have (we trade mortgage bonds directly in the market) and laws regarding vacant housing (it can not stay vacant).
      - MichaelZuo 3y ago
        I was commenting on the possible outcome of the DKK moving off peg and declining in value? Have you misunderstood what that menas?

friend_and_foe 3y ago

Ok but look at what they have to do to maintain the peg. It requires active management by teams of experts and government employees and massive amounts of capital reserves, just because the country contains a business that sells products to America. This is a symptom of the coincidence of wants problem, except between economies under national currencies rather than individuals, a problem you would not have if either globalization were not a fact or national currencies did not exist.