FX REPORT Norwegian krone Words | Charles Purdy, Director of Smart Currency Exchange
Strong, steady, Scandinavian
oming from the UK’s north- east, I have schoolboy knowledge of the Vikings, their great sea-faring skills and fearsome reputation. But I have never been to Norway and admit that it has never been at the top of my list of countries to visit. Shame, really, as it is clearly very picturesque with its ragged coastlines and awe-inspiring fjords. I would like to see the northern lights and midnight sun, but suspect I will have to wait until the children have left home as I am unlikely to get a buy in for a trip anytime soon!
C
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Norway is one of the richest countries in the world, with a large commercial shipping operation and huge mineral resources in the form of off -shore oil and gas. The oil and gas fi elds that have supported the UK economy for so many years also stretch all the way to Norway. One major advantage is that they have a small population of approximately fi ve million. Just a fraction of that in the UK – close to 65 million. With a much smaller population, they have been able to generate huge amounts of surplus cashfl ow each year, which they put into a state investment fund that has been used to generate annual income for the benefi t of the whole population. Contrast this
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with the United Kingdom where the benefi ts of the oil and gas bonanza have been used to paper over the cracks of government expenditure exceeding government income. The Norwegians also made sure that the oil and gas reserves yielded their maximum. It doesn’t
Investors see the krone as a safe haven
sound much, but if you increase the recovery rate from 40% to 50%, this is a 25% increase in output and hence in tax revenues. Adding this to the fact that the oil price is hovering around the US$100 level per barrel, it is clear that cashfl ow continues to be strong.
Therefore it comes as no surprise that the Norwegian krone is viewed as a safe haven asset by the world’s investors. So when things aren’t going as well as hoped for, the Norwegian krone would be close to the top of their buying list. It also helps that Norway avoided any real banking crisis, with well capitalised banks.
So it won’t come as any great surprise to fi nd that the Norwegian krone has been appreciating over the last few years against most currencies – especially against sterling, the euro and the US dollar. Before the crisis of 2007/08, the Norwegian krone was around the 11.5 level against sterling. It is now hovering around 9.0, a depreciation of just over 20% against sterling, and in the fi rst quarter of this year, we actually saw sterling push close to the 8.5 level.
Against the euro, we have seen the Norwegian krone appreciate
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