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Currencies
NORWEGIAN KRONE
Introduction | Overview | Structure | History | Factors affecting change in exchange rates | Daily trend of Norwegian krone | Weekly trend of Norwegian krone
Introduction


Krone is the official currency unit of the countries that were once a part of the Scandinavian Monetary Union that are Denmark, Norway and Sweden (called krona). The word "krone" is the synonym of English word "crown" and in plural form it is known as "kroner". "Øre" divides one unit of krone into 100 equal parts as it serves as the subunit of the currency. In plural form also, the word øre is called by the same name. The symbol with which the currency unit is depicted remains the same i.e. "kr", indifferent of the country in which it is used.

Norwegian krone is the national currency of the Kingdom of Norway. It has been used as the basic unit of exchange since 1875 when it replaced rigsdaler as a result of Norway’s induction in the Scandinavian Monetary Union. The ISO 4217 code defines the currency code of Norwegian krone as NOK and has set the numeric code of the currency as 578.

Overview


Norway has got a very small population and that is why it is considered a small economy as compared to the other economies in Europe. A high GDP of the country supported by a small population makes it one of the wealthiest nations of the world. The exclusive feature that makes it a different economy is its large offshore sector. Norway is the third largest exporter of crude oil in the world that provides with a major share of the country’s revenue. With the boom in the demand of crude oil in the recent years, Norway has come out as one of the strongest of economies. The currency of the country i.e. Norwegian krone has also done well and is one of the few currencies that have grown stronger against even Euro and US dollar. The value of the currency is largely dependent upon the world crude oil prices and interest rates.

There are no import and export restrictions in context of both local and foreign currencies till the amount 25000 kroner. The amounts exceeding this amount have to be declared with the authorities. Norwegian krone is also accepted as legal tender in Bouvet Island, Jan Mayer, Peter I Island, Queen Maud Land, and Svalbard other than in Norway.

Structure

The currency unit of Norway i.e. krone has its subunit as øre @ 1 krone = 100 øre. The functions of central bank in the country are held by the Bank of Norway also called the Norges Bank that was established in 1816. The bank takes up the responsibility of deciding the denominations and the designs for the notes and coins and also has the sole authority to issue the currency. As for the banknotes, the current series includes 5 denominations of notes that are 50, 100, 200, 500 and 1000 kr. All the banknotes have different color patterns so that it can be easy to differentiate them. The sizes of the notes are directly proportional to their face values i.e. the higher value note will be having a bigger dimension. The obverse of all the notes has portrait images of important people in the history of Norway and the reverse sides of the notes depict images symbolizing the pieces of their work. The details are mentioned in the list below
  • 50 kr note - Peter Christen Asbjørnsen’s image on the front side who was a writer and a scholer and the image on backside is based upon his story "A summer night in Krogskogen"

  • 100 kr note - Opera singer Kirsten Flagstad is shown on the obverse of the note and the reverse side of the note depicts a game plan of a main opera auditorium.
  • 200 kr note - Portrait image of Kristian Birkeland, a scientist is shown on the obverse side of the note and the theme on the reverse side is of the northern lights, one of topic of his research
  • 500 kr note - Portrait of Sigrid Undset, a novelist is depicted on the front side of the note and the backside of the note is based upon the title of her first book "The Bridal wreath"
  • 1000 kr note - The obverse side possess the portrait of Edvard Munch, a painter and his masterpiece "The Sun" is reflected on the reverse side

The coins are also minted in 5 denominations that are 50 øre, 1, 5, 10, 20 kr. The coins are of three different colors namely brown, silver and gold and the color of coins is based upon the former coinage system in which the lower values were minted using bronze and higher value coins were made of gold. Hence, the smallest value in this case i.e. 50 øre is brown color; the coins of the denominations 1 and 5 kr are silver in color and of the denominations 10 and 20 kr are golden in color. The coins are embossed with symbolic images on the obverse and reverse sides, the details of which are given in the following table

  • 50 øre coin - Front side depicts king’s crown and backside shows a fable animal

  • 1 kr coin - Obverse of the coin has an engraved image of monogram of Harald V and reverse side possess an image of a fowl bird

  • 5 kr coin - St. Olay’s order is symbolized on the front side of the 5 kr coin and the acanthi leaves are depicted on the reverse side

  • 10 kr coin - An effigy of Herald V is shown along with the motto "Alt for Norges" on the obverse side and the roof of stave church is shown on the backside.

  • 20 kr coin - the obverse side again contains the effigy of Herald V but the reverse side has an image of a Viking ship
History


The earliest known evidence relating to the history of currency in Norway is said to be a penny coin issued under the reign of king Olav Tryygvason around in as early as 1000BC. The coin was influenced by the penny coin of England’s Etherlred II. During that time, the minting function was totally a royal function and nobody was allowed to mint the coins privately. In 1387, when the throne of Norway collapsed, it came into union with Denmark and Sweden that lasted till 1814. The initial part of this time span saw no issuance of any currency with in the country and Norway had to import currency to fulfill the daily exchange requirements. The country followed the Danish currency system with the basic monetary unit as Gold Krone and Rigsdaler Courant and the Rigsbankdaler being the other units of exchange. In 1628, for the first time in the history of Norway, a mint was established, located in Christiania in the beginning but later on moved to Kongsberg. It minted silver coins using the silver from the mines located in Kongsberg. Also, the bank notes also started gaining importance till the end of 1600s.

In 1736, a private bank named "Courantbanken" was established that became the first issuing bank in Denmark-Norway. The bank issued the currency according to the royal regulation but there was no limit upon the quantity of currency to be issued. This led to the over issuance of currency and the value of the currency had to face a downfall. Finally, in 1791, as a corrective measure a new bank was launched, Den Danske og Norske Speciebank and a new set of regulations were evolved for the bank. But it did not serve the purpose of cleaning the monetary system and hence the power of a central bank was shifted to a new bank named Deposito-Cassen. Due to this severe state of affairs of the economy and the devaluating currency, Norway detached itself from the union with Denmark and got into a new union with the already independent Sweden in 1814. In 1816, the monetary unit of Norway was changed to "speciedaler" or "rixdollar" according to the Act of Storting and the central bank of Norway today i.e. Norges bank came into existence. The currency finally got further devalued in 1830 and after steady devaluation it was pegged to silver on a fixed basis in 1842.

In 1875, Norway joined the Scandinavian Monetary Union and according to the terms and conditions, it had to adopt krone and ore that was based on gold as its official currency unit instead of daler and skillings, which was based on silver standards. The union lasted till 1914 and got diluted due to the outbreak of the First World War. The three countries were free from the union, but they decided to use the same currency unit i.e. krone as their official currencies. Norway left the gold peg of the currency in 1931 and started to get valued at a fixed rate with the pound. The currency was again revalued according to the dollar standard in 1939 and because US dollar was linked to gold, it made krone to be linked with gold again. After World War II, Norway adopted the Bretton woods system in which its value was fixed against gold. When the system collapsed in 1971, the krone was floated freely in the market. The unit was again linked to a basket of currencies from 1978 and to the European currency unit in 1990 till 1992. Since then, it follows a floating rate regime.

Factors affecting the exchange rates between two countries


The volatility in the foreign exchange rates depends upon a numerous macro economic factors that have different degrees of importance to different economies of the world. Some special and exceptional factors affecting the rates may also exist in the case of different countries. Following are shown the common factors on which the foreign exchange rate depends

  • Flow of imports and exports between the countries
  • Flow of capital between the countries
  • Relative inflation rates
  • Fluctuation limits on exchange rate imposed by the governments of the countries
  • Merchandise trade balance
  • Rate of inflation in the country
  • Flow of funds between the countries for the payment of stock and bond purchases
  • Relative growth
  • Short term and long term interest rate differentials
  • Cost of borrowings
 
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