– The crown can lose its meaning – E24

The Minister of Finance will not allow the oil industry to pay taxes in dollars to strengthen the krone.

Everyone knows that the Krone is weak, but no one can fully explain why the Krone is weak.

Now Finance Minister Trygve Slagsvold Vidum rejects the idea of ​​collecting taxes from oil companies in dollars instead of krona.

appears in Written response For Parliamentary Representative Marius Arjon Nielsen (Frp). Nielsen asked Vidum about the possibility of allowing the oil and gas industry to pay the tax in dollars, which would then be transferred to the oil fund.

Vedom points this out Working Group It provided good reasons for Norwegian companies to pay taxes and fees in Norwegian krone.

“A solution whereby Norwegian companies can pay taxes in currencies other than the Norwegian krone could cause the krone to lose its importance as a currency, as companies only deal with another currency,” Vedom wrote in a written response to parliament.

“This is known as currency substitution, which means that the foreign currency assumes or gains an important role as a monetary unit of measure and medium of transactions in a country,” Vedom wrote.

– Interesting idea

Nielsen points out in the FRP report that a group of students at the Norwegian School of Economics investigated the possibility of allowing the oil and gas industry to pay taxes in dollars.

“It's an interesting idea, and I'd like to see the government evaluate it,” Nielsen wrote.

If oil companies paid the tax in dollars instead of krone, Norges Bank would not have to sell krone on the market to buy dollars that are transferred to the oil fund.

“Simple economic theory says that increased supply means lower prices, and here Norges Bank's large krone sales come in as a possible explanatory variable,” Nielsen wrote.

– I agree to some extent

Lars Molland, interest rates strategist at Nordea Markets, believes it is wise to continue paying taxes in krone.

– Maybe I agree to some extent with Fedom. There will be fewer krone transactions if you do this. “You will lose part of the liquidity in the market,” Moland tells E24.

– You can have periods where you have a very large amount of krone purchases, such as the fall of 2022 when energy prices were high, and you had a lot of krone sales throughout the spring, causing a lot of volatility in the krone. But maintaining these transactions in the krone market is likely to be an advantage.

– Vidom says that the krone could lose its importance as a currency if the oil industry is allowed to pay taxes in dollars. do you agree?

– It would have contributed negatively to the krone. He says: We should maintain the flows we have in the krone market today, and ideally we should get more flows.

– If we can convince the Europeans to pay for gas in krona, that would be great. Then we would have had more Norwegian krone inflows, and then there would have been more liquidity in the market. There is little trading in krone on the international market. Molland says a lot is being traded in dollars, and this is contributing to the dollar's rise.

Interest rate strategists believe that it is not krone sales at Norges Bank that have made the krone so weak.

– no. The most important thing is that the krone is a small currency, and we have a small currency market and little savings in Norway. Much of the savings disappears outside Norway, especially to the USA, which is the largest market for money management.

It indicates that the oil industry is buying krone

The Finance Minister points out that the Norwegian Bank's sale of the krone is offset by the fact that oil and gas companies buy with krone to pay taxes.

Vidom points out that the oil industry's purchases of krone are greater than the krone sales that the Bank of Norway transfers to the Oil Fund.

A large part of the krona paid by the oil and gas industry is transferred to the state budget and used by the government. Norges Bank only sells the remaining krona.

The current system means that buying krone is generally greater than selling krone, notes Vidom.

“Overall, the swaps resulted in net buying of NOK consistent with the size of the oil-adjusted deficit,” he writes.

The oil-corrected deficit in the state's general budget is covered using oil funds. This year, this deficit is currently estimated at just over NOK 400 billion. There will be new figures for the use of this year's oil funds in the revised budget on May 14.

Vidom confirms that the krone has been stable against certain currencies recently. He withdraws the Swedish krona and the New Zealand dollar.

“This suggests that the development was not particularly Norwegian, but rather due to the fact that major currencies, especially the dollar, have strengthened,” he wrote.

Ten percent interest would strengthen the krone

There has been a lot of interest around the weak krone. In the comment fields, this is due, among other things, to factors such as unexpected business taxes and krone sales at Norges Bank.

However, professionals point out that the currency market consists of a large number of players and fluctuations can have many causes.

-Is there a simple way to strengthen the crown?

The easy way is to raise the interest rate a lot. If the Bank of Norway had raised the interest rate to ten percent, we would have gotten a strong krone. But it has other consequences that we may not want, Moland says.

– Norges Bank declares that the interest rate here should be somewhat higher than in Europe and the USA. The crown will help. Historically, we have had somewhat higher interest rates at home than abroad, and this has helped keep the krone in check. Now we no longer have that, and that may have contributed a little bit to this additional weakness of the krone recently.

Another thing that could help is for Norway to attract more foreign investment, interest rate strategists believe.

But then Norway must become a good capital manager and make a number of structural moves to make it attractive for investment here, he says.

– Moland says: If we had a capital-intensive sector in the Norwegian krone, a lot would have changed for the krone.