The Norwegian krone (pluralised as "kroner") is the sole national currency of Norway. Its total volume in global circulation is ranked 31st, with a value estimated at US$120.7 billion. As the dominant form of currency used in Norway, the word "krone" itself translates into English as "crown." Norway's dependent territories of Svalbard, Bouvet Island, Queen Maud Land and Peter the First Island all conduct trade using the currency. Select independent businesses along Norway's borders with Sweden and Finland will accept kroner as payment for goods and services rendered.
NOK is its currency code, and its currency symbol is "kr." One krone is made up of 100 minor units called øre ("ore"), and its banknotes come in the denominations of 50kr, 100kr, 200kr, 500kr and 1000kr. Coins come in the denominations of 1kr, 5kr, 10kr and 20kr. The Norges Bank acts as the sole regulator and issuer of all bills and coins in Norway.
History Of The Norwegian Krone
Coins dating back to the year 1000 A.D. are the first known forms of currency used in Norway. They were produced sparingly at the discretion of the royal family who resided and governed the region during this period. Official minting and capacity for the mass production of coins was not developed until the early 17th century. In the year 1628, a national mint was established in Norway. Its function was to produce coins made of domestically mined silver for trade by the populace.
The transition to paper banknotes has its beginning in 1736 with the creation of the first bank in the Denmark-Norway region. The bank, known as the Courantbanken, was subject to royal regulation even though it was technically a private bank. It issued notes backed by silver for both domestic and foreign trade.
Eventually, the bank issued far too many notes to be redeemed for silver, and hastily failed. In 1773, the Courantbanken was absorbed by the state. Over the course of the next century, there were several more unsuccessful attempts to create a national banking entity and paper money.
Norway's Money Act of 1875 marked the inception of the Norwegian krone. Under the guidelines outlined in the act, the use of the silver-based "rixdollar" was discontinued in favour of the krone. One krone was to consist of one-hundred ore, and its value was pegged to the par value of gold. The pegging of Norway's currency to gold was a major term that had to be satisfied in order for Norway to be accepted into the Scandinavian Monetary Union. The Scandinavian Monetary Union consisted of Norway, Sweden and Denmark, and it lasted until the outbreak of World War I in 1914. Upon the commencement of WWI, the krone was removed from the gold standard, and it became a "floating" currency until it was again pegged to the par value of gold in 1928.
In 1931, the Norwegian krone was once again taken off the gold standard, and its value was pegged to the British pound. The initial exchange rate was 19.90 kroner to one British pound. In 1939, the krone's value was pegged to the United States dollar in place of the pound. The initial exchange rate was 4.40 kroner to one dollar. At the time, the United States dollar was backed by gold. Albeit indirectly, the krone was once again on the gold standard.
World War II ushered in an era of uncertainty and desperation for many nations and people not only in Europe, but around the globe. The rapidly changing political climate brought about massive fluctuations in currency values worldwide. In 1944, an attempt to mitigate the damage caused by the turbulent valuation of individual currencies during WWII was made. All 40 Allied nations met at the United Nations Monetary and Financial Conference at Bretton Woods, N.H. The goal of the summit was to create a world monetary structure that would provide stability and enable countries devastated during WWII to recover economically.
At Bretton Woods, the global concerns over international exchange rate volatilities were formally addressed. Two points of view became prominent on how to move forward with a new global economic structure. The first plan was developed by Harry Dexter White of the U.S. Treasury, while the second plan was championed by British economist John Maynard Keynes. Even though the specifics were hotly debated, it was unanimous that there needed to be structure provided to free-floating currency valuations.
The solution came in the form of a new international "pegged rate" system, which became known as the "par value" system. Basically, member nations of the new system would be required to declare a par value for their currency, or "peg" it to a larger, more stable currency. Also, a member country would be required to intervene in world currency markets on behalf of its own currency during times of increased volatility.
Norway officially entered into the Bretton Woods Accord in 1944. At its core, the adoption of the system by the Norwegian government meant that the krone was effectively back on the gold standard via the krone's pegging to the US dollar. Obligations to the newly created International Monetary Fund (IMF) and the exchange rate management policies outlined in Bretton Woods became central to Norway's management of the krone. This remained in place until 1971, when the Bretton Woods Accord was dissolved.
In Norway, the Norges Bank acts as the central bank, and has several authorities and functions. The Norges Bank Act of 1985 outlines the responsibilities bestowed upon the bank in its relationship to the country's economy. The bank coins money, acts as an advisory body concerning Norway's monetary policy, and promotes an efficient domestic payment system. It also works in concert with the government regarding economic matters, and it does not independently implement monetary policy. In the current market place, the Norwegian krone is a free-floating currency, thus the Norges Bank is active in controlling interest rates concerning the currency.
The supreme authority within the Norges Bank is the Executive Board. The board consists of seven members, and because Norway is officially a constitutional monarchy, each member is directly appointed by the king.
Economy Of Norway
The economy of Norway is largely dependent on the harvesting and exportation of its vast supply of natural resources. Industry has been developed in the extraction of petroleum products, hydropower, mining and fishing. The largest industrial sector of the Norwegian economy is the state-run petroleum and energy sector, which accounts for nearly 30% of total government revenue. The majority of the petroleum revenue is placed by the government in Norway's sovereign wealth fund. Valued at more than US$800 billion, it is the largest such fund in the world. Norway ranks in the top 10 globally in the exportation of oil and natural gas products.
Overall, Norway ranks 50th globally in regards to total GDP purchasing power. Although not comparable in size to the world's superpowers, the economic statistics concerning efficiency are strong. Globally, Norway ranks 11th in GDP per capita, and it also ranks 11th in gross national saving as percentage of GDP. Agriculture plays a small role in Norway's economy, contributing just under 2% of total GDP, as the service and industrial sectors dominate Norway's economic output. Norway ranks 34th in the world in total exports and is considered a net exporter of raw materials and goods.
Norway's most prominent international trade partners are Germany, the United Kingdom and Sweden. Petroleum products, fish and minerals serve as Norway's largest exports. Foodstuffs, machinery, metals and chemicals are the most frequently imported items. The value of the total exports of goods and services represent 38% of Norway's annual GDP.
The Oslo Stock Exchange (OSE) serves as Norway's chief financial marketplace. Also known as the Oslo Bors, it provides short-term traders and longer-term investors the opportunity to buy and sell Norwegian-based securities. Financial products such as derivatives, bonds and stock-based futures can be traded on the OSE. Its leading index is the OSX, which is made up by 25 of the country's most liquid companies and serves as the reference point by which Norway's equity markets are measured.
The equity market place in Norway is largely self-regulated by the OSE. Trading activity by individuals and groups are monitored and catalogued to reduce the chance of fraudulent market manipulations. In the event that international currency markets involving the krone become unstable, or the victim of exchange rate manipulation, the Norges Bank has the authority to intervene on behalf of the krone.
On the forex market, the krone is traded via a few select currency pairs. The two most commonly traded currency pairings for the krone are USD/NOK and EUR/NOK. A regional pair, and mostly locally traded, is the krone to the Swedish krona, NOK/SEK. Other minor pairs involving the krone are NOK/AUD, NOK/JPY and NOK/GBP.
Banknotes And Coins
Norwegian krone banknotes come in many different colors depending on denomination. Minted by the Norges Bank, the notes are colored accordingly: 1000kr notes are purple, 500kr notes are light brown, 200kr notes are blue-green, 100kr notes are burgundy and 50kr notes are green in hue. Portraits of historically prominent Norwegians, such as famous painter Edvard Munch, appear on the bills.
Extensive security measures are employed to prevent counterfeiting. Denominations of notes above 50kr all have a holographic foil strip embedded to the right of the bill's portraiture. Watermarks and security thread are present on all notes. An additional unique security measure present in note production is the implementation of fluorescent printing. When a note is exposed to ultraviolet light, hidden images become visible and prove authenticity.
The Norges Bank is also in charge of periodic coin minting. Coins come in 1kr, 5kr, 10kr and 20kr denominations. A hollow center is present in the 1kr and 5kr coins, while the 10kr and 20kr coins are solid and have the profile of King Harald V on the face. Silver collector's coins are also frequently minted by the Norges Bank and are offered for sale to the public as collectibles.
Norwegian Krone Around The World
The Norwegian krone is not a widely used currency around the world, and it resides largely as a regional currency. No countries employ the krone as a peg for their own monetary value, and its primary function is to act as a means for trade between Norway and its dependent territories.
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Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…