500 Kroner – Denmark

In 2022, Denmark's currency situation was defined by its long-standing and stable peg of the Danish krone (DKK) to the euro through the European Exchange Rate Mechanism II (ERM II). This policy, managed by Danmarks Nationalbank, aims to maintain a stable exchange rate, with the central rate set at 746.038 kroner per 100 euros, allowing a narrow fluctuation band of ±2.25%. Throughout the year, the krone faced upward pressure due to significant global inflationary trends and interest rate hikes by major central banks, including the European Central Bank (ECB) and the US Federal Reserve. To defend the peg and keep the krone from appreciating too strongly—which could hurt exports—Danmarks Nationalbank conducted substantial interventions in the foreign exchange market, primarily by selling kroner and buying foreign currency.

This active monetary policy required Danmarks Nationalbank to frequently adjust its key interest rates, often mirroring but slightly exceeding moves by the ECB to maintain the necessary interest rate differential that makes holding euros marginally more attractive than kroner. Consequently, 2022 saw a series of rate increases, with the benchmark deposit rate rising from -0.75% at the end of 2021 to 0.65% by the fourth quarter of 2022. These moves were defensive actions to curb capital inflows seeking higher returns in Denmark, rather than a primary tool to combat domestic inflation, though they contributed to tightening financial conditions.

Overall, the Danish krone remained remarkably stable against the euro throughout the year, a testament to the credibility of the fixed exchange rate policy upheld for decades. While the external environment of high inflation and rising global rates presented operational challenges and led to a considerable expansion of foreign currency reserves, the core framework proved resilient. The situation underscored Denmark's unique position within the European Union: closely aligned with Eurozone monetary policy while retaining its own currency and the ability to conduct independent interventions to ensure stability.