Gold is part of the foreign exchange reserve
One of Danmarks Nationalbank’s key tasks is to keep the Danish krone completely stable against the euro – known as the fixed exchange rate policy. One way of keeping the krone stable is by buying kroner and selling foreign exchange, or vice versa. Therefore, Danmarks Nationalbank has a foreign exchange reserve, and gold constitutes a smaller part of this reserve.
The value of the krone in the foreign exchange markets may change in minutes or hours; therefore, the foreign exchange reserve consists primarily of cash deposits in foreign banks and securities that may be sold quickly to fund intervention purchases of Danish kroner. So, the reasons why physical gold bars are included in the foreign exchange reserve – although they would take longer to sell if needed – are historical and legislative rather than practical.
Facts about Danmarks Nationalbank’s gold
- Danmarks Nationalbank’s gold weighs 66.5 tonnes. A single gold bar weighs 12.5 kilos on average.
- At the end of 2024, the value of Danmarks Nationalbank’s gold stock was about kr. 40.3 billion. Because the price of gold may fluctuate, the value of Danmarks Nationalbank’s gold varies.
- At the end of 2024, Danmarks Nationalbank’s gold accounted for just under 0.2 per cent of the central banks’ total holdings of gold, which according to the World Gold Council is total central bank stocks of around 37.755 tonnes of gold. It is estimated that central banks hold just under one fifth of all the gold extracted in the world of around 216.265 tonnes.
- Most of Danmarks Nationalbank’s gold is stored at the Bank of England.
The gold stock is held for historical reasons
Under the classical gold standard in the late 19th and early 20th centu-ries, many countries based their monetary systems on gold. This meant that coins had a certain gold content and that banknotes could be freely exchanged for gold coins at the country’s central bank according to an officially established conversion ratio (a gold coin standard). This system ensured fixed exchange rates between the participating countries.
Denmark left the gold standard shortly after the UK in 1931, and Danmarks Nationalbank’s obligation to convert its issued banknotes into gold was lifted. Since then, gold has played no role in Denmark’s banknote system.
During the economic crisis of the early 1930s, the international gold standard system collapsed. Denmark left the gold standard shortly after the UK in 1931, and Danmarks Nationalbank’s obligation to convert its issued banknotes into gold was lifted. Since then, gold has not played a significant role in Denmark’s banknote system.
Gold still played a part in the international exchange rate system established in the 1940s – known as the Bretton Woods system – and the European exchange rate cooperation EMS/ERM established in 1979, making it mandatory for participating countries to deposit parts of their gold stocks in a common depository.
Statutory gold requirement – and ongoing derogation
When the Danmarks Nationalbank Act was drafted in the early 1930s, it was still expected that Denmark would return to the gold standard. That is why the Danmarks Nationalbank Act states that Danmarks Nationalbank must possess a gold fund as collateral for banknotes issued, and it must cover at least 25 per cent of the total active note circulation, and that gold stored abroad cannot be included in the gold fund for an amount greater than 5 per cent of the total active note circulation.
Under section 13 of the Act, the Board of Directors may, after having obtained the permission of the Royal Bank Commissioner (the Minister for Industry, Business and Financial Affairs), grant permission to deviate from the requirement for gold coverage of banknotes in circulation of 25 per cent and the location requirement. This derogation was first granted in September 1939, and its renewal remains a regular item on the agenda of the quarterly meetings of Danmarks Nationalbank’s Board of Directors. As the banknote circulation has decreased over the years and the value of gold has been increasing, the gold reserve is sufficient to cover at least 25 per cent of the banknote circulation. Therefore, it is currently only the location requirements of the law that the Board of representatives dispenses with.
You can read more about the subject in Danmarks Nationalbank Act.
Most of the gold is securely stored in the UK
The geographical location of the gold stock has varied over time.
In the late 1930s, the gold stock was located in Copenhagen, but during 1939 and early 1940, much of the gold was moved to the Federal Re-serve Bank in New York. This was due to fears that Germany would occupy Denmark and reports that the central banks of the countries occupied by Germany had been robbed of their gold reserves.
In the mid-1980s, most of Danmarks Nationalbank’s gold stock was located in the USA. When Danmarks Nationalbank began to lend gold in the international gold market in London in 1987, most of the gold stock was moved to the Bank of England over a number of years.
Since 2002, Danmarks Nationalbank has held about 97 per cent of its gold stock at the Bank of England in London, around 0,5 per cent of its gold stock at the Federal Reserve Bank of New York and the remaining around 2.5 per cent in Copenhagen.
One of Danmarks Nationalbank’s gold bars is currently on loan for an exhibition at the National Museum of Denmark for visitors to see and touch.
Today, most of Danmarks Nationalbank’s gold is stored in a secure vault at the Bank of England
