http://www.bloomberg.com/news/articles/2016-06-06/denmark-land-below-zero-where-negative-interest-rates-are-normal

I thought this article dove-tailed nice with our conversation from last class. Reading the article, there’s a lot going on with the story of Denmark but it doesn’t appear that anything is rotten there 🙂

I found the following statement very relevant to last week’s discussion, “Denmark’s currency, the krone, was pegged to the deutsche mark from 1982 to 1999, and to the euro thereafter. Maintaining the peg is the sole mandate of the Danish central bank, so crucial is it to the economy. As the European debt crisis reached one of its periodic crescendos in 2012, investors seeking a safe haven piled cash into Denmark, threatening to push the krone out of its trading band. The benchmark deposit rate was already at 0.05 percent, leaving nowhere to go but down to reduce the country’s appeal to hot money. Denmark thus resorted to negative rates not to spur inflation—as Japan is trying to do, unsuccessfully—but to drive away speculators.”

By not opting into the Euro but instead pegging the Krone to it, Denmark was able to have much more flexibility and options than countries like Greece and Spain. Also, Denmark had an experience similar to the US in that investors piled cash into it during and after the crises.

Throughout the article, the author emphasizes that much of what happened in Denmark may be unique and that there might not be lessons to be learned from the country but I did enjoy the idea that Denmark is turning “Econ 101” conventional wisdom on its head. As we discussed in class, Economists and Economics is not an exact science and we should remember to approach the topic with a reasonable level of skepticism.