The Norwegian krone set another record last year in terms of sheer strength, compared to other foreign currencies. That makes Norway even more expensive than normal for visitors from abroad and poses problems for Norwegian exporters, while Norwegian residents themselves can save thousands on overseas shopping trips and holidays.
Newspaper Aftenposten reported Tuesday that the Norwegian krone has gained 6 percent over the past two years, based on a central bank index measuring relative currency strength. The krone also rose in strength to a record level for the second year in a row last year, based on average exchange rates throughout 2011.
Never before has the krone been worth more in other countries’ currencies. While severe problems in the US and Europe have dramatically weakened the US dollar and the euro, for example, Norway’s strong oil-fueled economy has continued to boost its own currency.
Norges Bank, the country’s central bank, has kept interest rates low not least in an effort to control the strength of the krone. Results have been mixed, though, and Norwegian industrial firms and other exporters cringe over just how strong the krone is. It makes exchange rates highly unfavourable for foreign customers, which in turn causes pricing challenges for Norwegian exporters already faced with producing goods in a high-cost country while needing to stay internationally competitive. That’s why so much production has been moved out of Norway in recent years.
In the 1980s, there were times when one US dollar could buy as many as nine Norwegian kroner. This week a dollar was buying only around 5.8 kroner and exchange rates have been even better (or worse, depending on which currency a consumer is holding). Last year there were several occasions when a dollar only cost around NOK 5.2.
Norwegian shoppers save overseas
This week, a pair of shoes priced at USD 100 at a shop in Chicago, for example, only costs a visiting Norwegian shopper around NOK 580. That’s cheap by Norwegian standards. In London, where Norwegians often flock to shop, exchange rates can be even more favourable although prices can be higher than in the US. Aftenposten interviewed one Norwegian woman who’s just spent a week on holiday in London, shopping and dining out. She figured she and her husband had saved at least NOK 4,000 buying clothes and sports gear, compared to what they would have had to pay for the same goods at home.
The strong krone causes problems, though, for Norwegian residents who do business abroad and are paid in foreign currencies. A paycheck in British pounds or US dollars, for example, converts into far less kroner than it did just a few years ago, and Norway’s tourism industry risks being priced out of the market. Everyone from hotel operators to those offering package tours have felt pressured to lower their prices in order to attract foreign tourists. Many are stunned by the price of a dinner and drinks in Norway, and there have been calls for cutting Norway’s 25 percent VAT for restaurants and bars, in order to make dining out more competitive with other countries.
Several economists including Steinar Juel at Nordea Markets, note, though, that much of the reason for the strong currency is simply Norway’s strong economy. It makes Norway a “safe haven” for investors who see little risk that the value of the krone will fall. As economist Elisabeth Holvik at SpareBank1 Gruppen told Aftenposten: “In turbulent times, investors want to place their money in safe countries. When other countries have been downgraded, Norway has become more attractive. That raises demand for the krone and pushes up exchange rates. Norway also has generated strong revenues on a high oil price. That firms up Norway as having a solid economy and that the krone is a currency that will stay strong.”
Views and News from Norway/Nina Berglund
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