The value of Norway’s currency fell to historically low levels on Thursday, just as Parliament was promising to further secure both employers and workers during the Corona virus crisis. The country’s strong treasury can provide such relief, and the US dollar value of the country’s huge sovereign wealth fund even shot up, while the central bank that manages it announced it may intervene to shore up the currency by buying up more kroner itself.
The central bank (Norges Bank), in an unusual and brief statement, cited “an extraordinary situation in the market for Norwegian kroner” and noted that “movements in the exchange rate” for the currency have been “historically large.”
(Editor’s note: Norway’s krone is the singular form of the country’s currency that’s also known as the “crown,” while kroner is the plural form and used by the central bank also in English.)
Norwegians woke up Thursday morning to exchange rates that put the price of one US dollar at at stunningly high NOK 11.85 (compared to the “normal” rate of around NOK 6-7 in recent years). One euro cost more than NOK 13. By midday, the dollar rate had settled down, to NOK 11.47, but that still amounts to remarkable weakness in the krone and indicates what many analysts were called “panicky” markets.
“Against this background,” read a mid-morning press release from the central bank, “Norges Bank is continuously considering whether there is a need to intervene in the market by purchasing Norwegian kroner.”
Buying up its own currency can mark an effort boost its value, as witnessed by the bank’s shopping last year as well. The central bank’s board already lowered interest rates by a half-point last week, to help ward off ill-effects of the Corona crisis on the economy, and announced increased “sales of foreign exchange on behalf of the government” in March.
Those sales more than tripled, “from an amount equivalent to NOK 500 million,” wrote the central bank, “to an amount equivalent to NOK 1,600 million.” Norway generates most of its export revenue in US dollars because that’s the currency in which its North Sea crude oil is traded. Most of those dollar revenues are stashed away in Norway’s sovereign wealth fund known as the Oil Fund.
The central bank can get a lot more kroner for its dollars now, at a time when the government needs to spend more kroner amidst declining tax revenues resulting from the Corona crisis. “The government must therefore convert an increased share of petroleum revenues into NOK,” the bank wrote on Wednesday.
The weak krone also makes Norwegian export prices more competitive, but Norway is troubled by the recent dramatic fall in the price of oil, from well over USD 60 per barrel just several weeks ago to less than USD 26 on Thursday. Even at an exchange rate of nearly NOK 12 per barrel, the USD 312 that generates is a lot less than the USD 540 generated when the dollar cost around NOK 9 last fall.
The oil price collapse during the past week is likely the single-biggest factor behind the collapse of Norway’s kroner on Thursday, along with what analysts view as general panic in the markets. Newspaper Dagens Næringsliv (DN) reported on Thursday, meanwhile, how the kroner value of the Oil Fund shot up even after many of its stock market investments have been hammered along with markets all over the world since last Monday.
DN noted that Norway’s Oil Fund was worth a dizzying NOK 10,088 billion at New Year. On Thursday morning, it was worth NOK 10,500 billion even after the recent international stock market dives. Its stock market portfolio, which accounts for 70 percent of the fund’s assets, was down but the bond and financial portion of the fund has increased while both the dollar, euro and other major currencies have risen against the krone. “When the krone falls, shares and commercial paper in dollars and euros are worth more in kroner,” DN noted.
Measured in strictly dollars, the value of the Oil Fund has fallen around 24 percent this year. Measured in krone, it gives Norwegian politicians more room to act as they try to bolster businesses and household income that’s suddenly disappeared with this week’s massive layoffs. The government is allowed to spend 3 percent of the kroner value of the Oil Fund every year. Right now, that amounts to well over NOK 300 billion.
‘The money will come’
That explains why the Parliament’s finance committee announced majority support on Thursday for more sweeping measures to help offset the ravages of Corona. “Everyone will get the money they need,” stated an unusually generous Hadia Tajik of the Labour Party, while even Sylvi Listhaug of the conservative Progress Party also claimed that “the money will come” to those who need it.
They include students who’ve seen their part-time jobs disappear, laid-off workers at airlines, hotels, restaurants and shipping lines, for example, plus all the musicians whose concerts have been cancelled and actors in theaters that have closed. There are thousands of others who’ve seen good, seemingly secure jobs vanish overnight, including thousands at Norwegian Air and the Hurtigruten coastal voyage line.
Members of Parliament also plan to cut the taxes employers pay per employee (arbeidsgiveravgift) by 4 percent over the next two months and they want the government to provide even more generous measures than those already announced, to restore liquidity at companies where sales have halted. That includes the airlines, but the MPs stopped short of proposing any more specific relief plans or even bail-out measures because of stock market sensitivity. There’s also political debate over whether Norwegian taxpayers should bail out Norwegian Air, for example, which is widely viewed at having created many of its liquidity problems long before Corona set in.
The government will be introducing its own round of additional proposed economic relief measures on Friday. All party leaders are stressing the need for ongoing “constructive cooperation” among them, even though back-room bickering continues. The finance committee’s measures rolled out Thursday morning came after another late-night session of intense negotiations.
“We can’t solve all the problems,” said Hans Fredrik Grovan of the Christian Democrats party at a press conference Thursday morning, “but we can contribute to relieving them.” Committee members from the other parties in Parliament nodded in the background, with an unusually conciliatory Trygve Slagsvold Vedum of the Center Party noting that “when we help each other, we help the country.”