samlet årgang - Økonomisk Institut - Københavns Universitet

INTEREST-RATE DEVELOPMENT IN DENMARK 1875-2003 – A SURVEY 157
at 24.4 per cent per annum in 1940. However, compared with the Classical Gold Standard
period, the nominal interest-rate level was only slightly higher and fairly stable.
In the period 1946-1971 Denmark participated in the Bretton Woods fixed exchangerate
system established under the auspices of the International Monetary Fund. The US
dollar was the anchor currency of the system. In the late 1940s the UK was still Denmark’s
largest trading partner and the devaluation of the British pound by 30.5 per cent
in September 1949 was followed fully by Denmark. During the 1950s and 1960s Denmark's
trade pattern gradually changed towards higher export shares to continental
Europe, and the devaluation of the British pound in November 1967 by 14.3 per cent
vis-à-vis the US dollar was only followed partly by Denmark (7.9 per cent). During
the Bretton Woods period some capital-account transactions (mainly in relation to shortterm
commercial credits, financial loans and non-financial direct investments) were
liberalised but most portfolio investments to and from Denmark still required permission
from the Danish monetary authorities. In the Bretton Woods period the average
Danish inflation level was only slightly higher than in the period 1914-1945, but during
the 1960s there was a sustained upward trend in inflation rates as well as in nominal
interest rates.
After the breakdown of the Bretton Woods system in the beginning of the 1970s, the
Danish exchange-rate policy became part of the European exchange-rate co-operation,
first within the »Currency Snake« founded in 1972 and subsequently from 1979 within
the European Exchange Rate Mechanism (ERM).
The post-1971 period also saw a gradual process of deregulation of the remaining
Danish restrictions on capital-account transactions. From December 1974 non-residents
were given free access to buy Danish krone-denominated exchange-listed bonds
(with an original maturity of more than 2 years). However, in February 1979 the free
access was abolished again, but it was reintroduced in May 1983. The last restrictions
on capital account transactions in Denmark 5 were removed in October 1988.
The oil price shocks of the 1970s and frequent devaluations of the krone during the
late 1970s and the beginning of the 1980s caused a continuation of the upward trend in
inflation and a widening of the long-term interest spread between Denmark and its
main trading partners. Danish government bond yields reached a post-1875 all time
high of 22.11 per cent in 1982. The government debt increased rapidly, and a fear that
Denmark was on the verge of »state bankruptcy« began to rise. In the beginning of the
1980s the yield on long-term Danish government bonds exceeded the yield on long-
5. Mainly concerning money market papers, Danish banks’ foreign-exchange loans to residents, loans in
kroner to residents from Danish banks’ foreign units, private individuals’ loans abroad and private individuals’
access to open accounts in foreign banks. For a review of the liberalisation cross-border capital
movements in Denmark in the period 1950-1985, cf. Danmarks Nationalbank (1986) and Chapter II in Det
Økonomiske Råd. Formandskabet (1985).