banknotes and coins and can be used in the entire area. i will go into the issue of the special faroese banknotes a little later. re 2 ) danmarks nationalbank is responsible for the currency, which is the danish krone. danmarks nationalbank has a considerable net capital and a large foreign - exchange reserve, which safeguard the stability and credibility of the currency. re 3 ) the private banks and credit institutions in denmark, in greenland and on the faroe islands may hold accounts at danmarks nationalbank and may make deposits or raise collateralised loans. danmarks nationalbank is “ banker to the banks ” in the entire danish commonwealth. re 4 ) the payment and clearing system can be used by danish, faroese and greenlandic banks. re 5 ) danmarks nationalbank is the central bank to all banks in the danish commonwealth. it may thus provide liquidity support to a solvent bank with liquidity problems. this function is called “ lender of last resort ”. it is very rarely used, but it has happened. the special faroese banknotes act no. 248 of 12 april 1949 stipulates that the faroe islands shall have their own banknotes as legal tender on the islands. these banknotes are printed and issued by danmarks nationalbank. the faroese banknotes in circulation are included together with the danish banknotes in circulation in the item “ banknotes ” on the liabilities side on danmarks nationalbank ’ s balance sheet. the faroese banknotes can be exchanged for danish banknotes on a 1 : 1 basis. danmarks nationalbank has cash depots on the faroe islands to supply banknotes to the local banks. although the special faroese banknotes can be used for cash transactions on the faroe islands, contracts, bank deposits and financial transactions are conducted in danish kroner. banknotes in circulation consist of the special faroese banknotes, but the money stock is otherwise made up of bank deposits in danish kroner. the international iso currency code for danish kroner is dkk. this currency code is also used on the faroe islands. the faroese banks use danmarks nationalbank ’ s monetary - policy instruments and the danish payment systems. danmarks nationalbank ’ s decisions relating to monetary and foreign - exchange policy - including interest - rate decisions - apply fully and directly to the faroe islands. it must thus be concluded that the danish krone is used as the currency of the far

##oe islands today. the faroese banknotes should be regarded as banknotes issued by danmarks nationalbank with text in faroese, even though this is not explicitly indicated on the banknotes. this corresponds to the situation in scotland where special scots banknotes are used, but the currency is the pound sterling, and the bank of england is the central bank for all of the uk. the faroese banknotes are a special version of the currency danish kroner. on no account - neither fully nor partially - do they constitute a separate currency, although in some places the wording of the act of 1949 may indicate this. the currency of the danish commonwealth at present the danish krone is thus the currency of denmark, greenland and the faroe islands. and danmarks nationalbank is the central bank for the entire danish commonwealth. 3. are there any alternatives? besides a presentation of the current system the organisers also asked me to present alternatives. that means a situation where denmark retains its currency, but the faroe islands and / or greenland get their own currencies, abandoning the common currency. for the sake of simplification i will describe alternative exchange - rate regimes for the faroe islands only. in principle, the same would apply to greenland, however. at the moment an independent currency for the faroe islands is not an issue since the political announcements are that monetary and foreign - exchange policy should still be conducted by the danish national authorities. nevertheless, let us make the theoretical assumption that it is decided that monetary and foreignexchange policy should be conducted by the home rule of the faroe islands. in that case there are three main options : a currency union with denmark, a fixed - exchange - rate policy or a floating exchange rate. let us look into these three options. a currency union if home rule is introduced in the field of monetary and foreign - exchange policy, danmarks nationalbank will not be able to continue its activities on the faroe islands. it will be an entirely new situation. if the faroe islands wish to continue with the danish krone, an agreement must be concluded with denmark on a currency union. this decision cannot be made unilaterally by the faroese authorities. continued use of danish kroner in this situation would thus require an agreement to be approved by the danish and faroese parliaments. as mentioned, each currency area can have only one monetary - policy authority. furthermore, elements of denmark ’ s monetary and foreign