What should we do with our crowns?

(This post It was first published in Everythingwith which ABC Nyheter collaborates).

Our krona continues to decline in the foreign exchange market. The euro is now around NOK 12.

A weak krone is good for industry, but when it is close to a complete collapse, it creates problems for most people. For a small, open economy like ours, a weak krone means higher prices and inflation. Norges Bank is then forced to raise the interest rate too much and make life miserable for everyone who has a mortgage, losing the buying power it gets after a tough salary negotiation.

In the past, the Norwegian krone tracked the price of oil. If the price of oil falls, activity in the Norwegian economy decreases. The weak value of the krone increased competitiveness and ensured we were on our feet again. If it is too low, Norges Bank can raise the interest rate, so that the krone becomes more in demand in the international capital market.

This is no longer the case. Today, oil prices and interest rates are relatively high, while the krona is slipping and sliding – like a roller coaster.

How did we get here?

First of all, we have to look at the causes: geopolitical turmoil – read war – creates waves and market turmoil. Then investors in the international capital market look for a safe place to put their money. Why is the currency of the world’s most powerful economy no longer a safe haven?

Instead of selling krona, Norges Bank should buy them, so that demand goes up – and so does the value of krona.

Many will say that we are too small, and this is not wrong. Because if we are a safe haven, we are a tight harbor. Not to get in but to get out of. If you buy NOK and it continues to weaken against other currencies, it can be very difficult to sell it. Investors understand these risks – and so do the algorithms that now dominate the financial market.

The irony is that historically high gas revenues due to the war in Ukraine mean the Bank of Norway must sell NOK to buy dollars, euros and yen, which the oil fund can invest abroad. Then they shoot krona on the foot: instead of selling krona, they must buy it, so that demand goes up—and so does the value of krona.

read more Climate and Energy Altinget

futures market

Investors in the global capital market are looking ahead. Because if the Norwegian economy is healthy, it is completely dependent on oil. If we take away the income from oil and gas, Norway is running a massive deficit. Whether in the trade balance or in operations. In addition, 98 percent of our economy is linear – which means we are among the worst in the world for the transition to a circular and sustainable economy. We use raw materials and throw them away, while others have a much greater degree of recovery and recycling.

Yes, the Oil Box can top up monetaryBut we are not creating jobs and economic growth by relying on reserves. on the contrary. Then we create inflation and lower productivity.

We must also not forget that the global capital market is watching us very closely. They see that Norway will have big problems reaching a 55 per cent reduction in greenhouse gas emissions within the next 6.5 years. They see Norway investing like never before in new oil fields, while the rest of Europe is investing in renewables and has drawn up a detailed gas phase-out plan – just as EU countries have done.

If we continue the oil wealth by constantly opening up new fields, the risk of “stranded assets” — or lost investments in oil and gas — increases. In addition, the proposed wind energy tax is a form of expropriation for industrial projects with large institutional investors. It does not guarantee the will to invest – which we may need when the US and EU launch their own large and comprehensive support packages.

Thus the market sees features of the Norwegian economy heading for a “hard landing” – with much less exports, which means less demand for the Norwegian currency. It also says something about our lack of will and ability to change.

What can we do?

There are many things we can look at. In the short term, we can, for example, send a signal to the market that we want to “peg” – or fix – the krone to a specific value against the euro and the dollar. It will send a signal to the market that the Bank of Norway will follow the interest rate on the euro and intervene in the market to defend the exchange rate. Iceland does this today and not least Switzerland, despite the opposite sign. It may cost us a lot, but with our massive savings we can afford it. The Danes, whose kroner is now worth over 50% more than the Norwegian (!), have a separate agreement with the European Central Bank to defend each other’s currencies on the market.

In the long term, we must accelerate the restructuring of the Norwegian economy. Away from the climate-damaging petroleum sector and into the industries the market believes in. Only when we really prove that we have a feasible plan to transform into a sustainable Norwegian economy will the international capital market take us seriously. Only then will the market regain confidence in the corona.

Then the Norwegian Parliament should change the mandate of the Bank of Norway to include climate risks, as both European and British central banks have done. This means that monetary policy must contribute to maintaining climate stability, and within the goal of the Paris Agreement, in addition to the goal of maintaining price stability.

We don’t have time to lose. Neither corona nor climate.

(Votes is the discussion section of ABC Nyheter. Here regular and occasional contributors write about current news topics. We also collaborate with the online political newspaper Altinget.no . If you are burning with an opinion or analysis, you can send the text to the following address: [email protected], and we will consider it).

Also read in Alting: Mathilde Sawm: Yes to nuclear power and yes to Norway’s EU membership