A brief history of the Norwegian krone

Norway is strongly integrated into the EU’s markets. Despite this Norway is not a member of the union. It continues to use the Norwegian krone as its national currency. There are many views on why Norway opted out of the EU. There is speculation on whether it will ever adopt the Euro as a currency. Here is an attempt at answering these questions.

Origins of the krone

The Norwegian krone is regulated by Norges Bank, which is Norway’s central bank. The krone is subdivided into 100 øres. Since 2012 the øre only exists in its electronic form. The 1 krone coin is the lowest currency denomination. Prices are rounded off to the nearest whole number. For instance a carton of milk which costs NOK 4.67 is rounded off to NOK 5 when paying with cash. When paying with plastic you pay the exact quoted price.

Before 1875 Norway used the speciedaler as its official currency. The Norwegian krone came into existence when Norway, Denmark, and Sweden formed the Scandinavian Monetary Union (SMU) in 1875. The krone replaced the speciedaler. World War I brought an end to the SMU. However, instead of reverting to their previous currencies the three Scandinavian nations chose to retain their respective krones. Corporate Finance Institute reports that the Norwegian krone is now the fourteenth most traded currency in the world based on value.

EU relations

Norway is a part of the EFTA (European Free Trade Association) along with Switzerland, Iceland, and Liechtenstein. It was one of the founding members of the EFTA. Norway has been a long-standing member of the western Europe bloc ever since its inception in 1960. In 1994 Norway joined the EEA (European Economic Area) with plans to join the EU later. The EEA acts as a transitory framework for EFTA countries that wish to join the EU. However a Norwegian referendum took place shortly after Norway joined the EEA. In the referendum Norwegians voted against joining EU.

This was not the first time that the Norwegian populace decided against joining. A public referendum was held previously in 1972. 53.3% of Norwegians voted against EU membership while 46.5% were in favor. The results of the next referendum in 1994 were similar – 52% against and 47.8% in favor. Over the past many decades politicians and mainstream media have been vociferous about joining the EU. However a majority of Norwegians keep voting against it. This has puzzled many observers.

The Norwegian reluctance

Economic analysts broadly cite 2 reasons for Norway’s reluctance to join the EU. Marianne Sundlisæter Skinner is an associate professor at the Department of Health Sciences, Norway University of Science and Technology. She has conducted a detailed study on the matter. The researched involved examining political manifestos and speeches from the decades in which Norway was debating EU membership. It also involved a scrutiny of over 500 letters sent to the editors of the news publication Aftenposten.

Several voters rejected the proposal because they feared Norway would lose its sovereignty by joining the EU. They feared that other European countries would meddle in Norway’s political and economic affairs. Norwegians hold their democracy in high regard. Being a member of the EU was seen as posing the risk of losing their democracy.

Many others who voted against joining wanted to protect their agricultural sector and Norway’s coastal fisheries. Voting data from Statistics Norway showed that more than 70% of the rural population in northern Norway voted against joining the EU. According to Prof. Skinner, “this reflects the strong anti-centralization sentiment in the peripheral regions of the country.”

Impact of the two referenda

Norway’s decision to stay out of the EU has not had any discernible impact on its GDP growth rate. Data from the World Bank shows that Norway has had an average GDP growth of 2.3% since 1995. This is only marginally lower than that of Sweden and Finland (2.6% and 2.9% respectively). Moreover Norway turned away from a fixed exchange rate. Instead of pegging the krone it adopted a floating exchange rate. This means the krone’s value is determined purely by supply and demand in forex markets. This had the effect of shielding Norway from the EU crisis. As a result Norway has fared exceptionally better. For example the cost of sending international remittances from Norway to Bangladesh, Nepal, or Pakistan is merely 0.43%. Sending to the same recipient countries from Sweden or the Netherlands would cost 1.2%. Millions of migrants in Norway send remittances to their home countries via the Ria Money Transfer App and similar channels. Lower costs of sending remittances mean that millions of Euros more worth of international money transfers reach developing countries each year.

Will Norway ever join the EU?

Experts don’t expect Norway to join the EU anytime soon. An Aftenposten editorial said that Norway does not have anything to gain from joining the EU now. It already has sufficient access to EU’s inner markets in the form of several bilateral agreements and arrangements. Despite not being a member of the EU, Norway still abides by most of the rules. It may not have a say or vote in EU debates. However this is not a concern for the Norwegian people. They prioritize their autonomy and the independence. Not being an EU member gives them that freedom.

About the author:

Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.