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Denmark ready to impose capital controls to protect currency

Central bank could take drastic measures to prevent flow of money into the country and maintain its peg to the euro

Denmark's central bank has already taken extraordinary measures to maintain its currency peg Credit: Photo: Reuters

Denmark's central bank is ready to impose capital controls to stop the inflow of money that has threatened its currency peg with the euro.

The country's central bank has already made a series of drastic moves to protect the value of the krone as the euro has continued to weaken on news of eurozone QE and worries about Greece.

The head of Denmark's Economic Council Hans Jorgen Whitta-Jacobsen said the central bank had other means available to defend the peg "to the last drop of blood".

"If it takes restrictions on free capital movement for a period to defend the fixed exchange rate, I assess that the central bank would be willing to go that far," Mr Whitta-Jacobsen said.

Denmark's deposit rate has already been slashed to a record low -0.75pc, having been cut four times in less than three weeks.

The country has also been forced to into massive foreign exchange purchases, buying €32bn so far this year to prevent the krone from developing into a safe haven for investors.

This intervention amounts to nearly 10pc of Denmark's GDP and is deemed unsustainable by some analysts.

The news saw the value of the krone weaken to 7.46 to the euro, its biggest one-day move since 2001.

In a dramatic move earlier this year, the Swiss national bank scrapped its de facto peg with the single currency on fears that QE would deem it unsustainable.

This has put pressure on Denmark's exchange rate, with some investors suggesting the Nordic country could be also be forced to scrap its peg.

The central bank has previously vowed it has all the tools necessary to maintain the peg.

The krone is allowed to trade in a narrow band of around 7.46 krone to the euro.

Cyrprus was the last European country to impose a form of "soft" capital controls to prevent money leaving the country as the height of its crisis in 2013.

Although EU law promotes the free movement of capital, controls are legal under EU law if they are imposed as a matter of protecting public security and gain the assent of fellow EU members.