Norway bank body recommends direct link crown with euro

Apr 17, 1998 02:00 AM

The Norwegian Bankers' Association has recommended that the crown be directly linked to the euro after the launch of Economic and Monetary Union (EMU) planned for January 1, 1999.
The association said it believed such a link could form the basis for a closer relationship between the crown and those currencies in the so-called Exchange Rate Mechanism 2 (ERM 2) system, which will not join EMU in the first round.
In 1990 the crown was linked to the European Currency Unit (ECU), but was forced to devalue after a wave of speculative selling in 1992.
Since then it has been in a so-called "dirty float" with the central bank, Norges Bank, charged by the government to use monetary policy to maintain a stable crown exchange rate within certain limits.
The association said closer links to the ERM 2 system could pave the way for a mutual agreement with the European Central Bank on policy support in the case of sharp swings on foreign exchange markets.
"That could enhance trust in the crown as a stable currency," it said.
Norges Bank had such links with European Union central banks while the crown was linked to the ECU.
The Norwegian government is studying different alternatives for linking the crown once the euro is launched and has not yet presented its decision.
Crude oil and natural gas made up about 48 % of Norwegian exports in 1997, with fish exports coming second at around 7 %.
Oil is traded in dollars, while gas and other exports are often quoted in local currencies.
"We made the choice in 1990 that more weight should be put on other industrial areas than just on dollar oil prices," said Arne Skauge, managing director at the association.
"It's a very delicate balance, but still a large part of our trade is with Europe and for small and medium-sized businesses it is an advantage (to link to the euro)," Skauge said.
Linking the crown to a basket of currencies, including the dollar and the yen, always left open the possibility of technical changes and alterations of composition, Skauge said.

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