Wednesday 19 April 2017 (16h22) :
Denmark eaten down to the bone, what’s next?

By : Henrik Petersen
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In Denmark, banks seem to be taking control over citizens. Using negative interest rates as a monetary tool could at end go against one’s right to earn and save. The banks have launched a war against cash, also; so there isn’t any other option besides going through them to save and use money.

To understand how Denmark slowly became a kingdom where Banks are king, some context is necessary. Denmark’s Sole land border is with Germany, which is also its biggest trading partner. Yet, the Danes have always taken a step back when it came to the European Union and the Euro zone which they rejected by referendum in 2000.

But after the Deutschmark disappeared, Denmark’s Krone was pegged to the Euro. When the European debt crisis hit, in 2012, Denmark was even used by investors to pile up cash as they were seeking a safe haven to do so.

Today, in Denmark, Banks have made cash becoming more and more a hot topic. The government even jumped in, backing up the banks in that task, to the point that the country could be one of the first on earth to become cashless.

Companies don’t have a lot of option: “You get penalized these days for having cash in the bank,” laments Jens Lund, chief financial officer of logistics group DSV. The firm found itself in a tricky situation in November, when it sold 5 billion kroner ($750 million) of shares to fund a takeover of rival UTi Worldwide. Short of renting a huge vault, that meant sitting on most of the proceeds at negative rates until the deal was finalized in January, at a cost of about 4 million kroner. Apart from shopping around for the bank that would take the smallest cut, Lund says, “there’s not much you can do about it.” (1)

Negative rates seem to be moving from medium-term peculiarity to a long-term reality. It is reversing the fundamental principles of debt and savings. Capital always had a cost, but today, in Denmark, it doesn’t. “I believe it will change the psychology,” says Karsten Beltoft, chief executive officer of the Danish Mortgage Bank’s Federation. “That could be dangerous. There’s a difference between standing on the beach in dry sand and moving into the water,” he says. “The further you go out, and the longer you stay there, the more problems you can run into.”

An industry lobbying group estimated the cost to Danish lenders at more than 1 billion kroner last year. If the banks are making less money with interest rates, they are compensating with their fees. For them, the forever goal has been to get as many Danes as possible to put as much as their money in the bank. Making cash disappear is probably the biggest accomplishment in that sense. In a world with no cash, banks remain the only option to have your money, they are also the main go to option when you need to spend it, with cards, e-wallets or other payment methods… But all of that has a fee… A fee that didn’t exist with cash-money.

But are Danish citizens happy with the plan their banks have for them? This year, a figure came to show the banks that Danes weren’t ready to say goodbye to their banknotes. In July, Danes had placed a record 893 billion Danish crowns ($135.3 billion) in cash in banks analysts said. "It is good news that the Danes can withstand a downturn but on the other hand it shows how difficult it is to lift the growth," analyst Mikkel Hoegh from BRFkredit wrote in a note (2). The rise of deposits in Danish banks has happened in spite of the banks paying very little or no interest on deposits as a result of the Danish central bank having kept its key interest rate in negative territory since Sept 2014.

This proves that Danes still trust cash-money and that they might trust the safes in their banks more than the banks themselves. For all that, the fear of instability provoked by negative interest rates is real for the Danes. "The numbers showed clearly how vulnerable the economic upswing is," analyst Soren V. Kristensen from Sydbank said.

It is likely possible that in the near future, the gap between the banks and the citizens grows in Denmark. But where will the lawmakers stand remains uncertain.

To this day, the Danish Government still hasn’t released a firm date on when they would want to fully be a cashless economy. But for the banks, the sooner will be the better. Are the Danes willing to give up on their essential rights of privacy, and the basic right to earn and save their money the way they want without having to fully depend on the banks to do so? The answer should come soon enough as the country is entering a new election period where the power of banks will be quite a hot topic.

(1) The land below zero: where negative interest rates are normal, Bloomberg Markets, Matthew Campbell, Peter Levring, June 6th 2016 (2) Danes pile up record amount of cash in banks, Reuters, Aug 25th 2016

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