##roner as substitutes. the peg is a political decision with a clear mandate. it enjoys support from across the political spectrum and it is well understood by market participants. the framework implies a clear division of responsibilities in economic policy - making. monetary - policy interest rates are reserved for keeping the krone stable. when setting rates we do not take into account factors such as inflation, growth, employment and house prices. these considerations are addressed by other economic policies. in particular, fiscal policy plays an important role in ironing out economic fluctuations. the policy framework has been the foundation for a stable macroeconomic environment with low inflation and relatively modest business - cycle fluctuations. slide 5 : fixed exchange rate introduced after a period of high and volatile inflation the fixed exchange - rate regime was introduced on the basis of an unsustainable macroeconomic situation in the 1970s and early 1980s. unemployment was high and there were recurrent deficits on the government budget balance as well as on the balance of payments. furthermore, repeated devaluations targeted at restoring competitiveness only resulted in high and volatile inflation and high interest rates. side 2 af 13 in contrast, the german bundesbank managed to maintain low and stable inflation by the standards of that time. since germany was denmark's largest export market, it was decided to link the krone to the d - mark. as a result, danish inflation approached that of germany. the same holds for short - term as well as long - term interest rates. slide 6 : danish monetary - policy rates tightly linked to ecb rates an exchange - rate peg can only be maintained if one is willing to implement the same monetary - policy stance as the anchor country. this is a precondition in a world with international capital mobility. it implies that most of the time, danish monetary policy rates follow those of the ecb. if the exchange rate tends to deviate from the central rate, we first intervene in the fx market by either buying or selling kroner against foreign currency. if this does not have the desired effect on the exchange rate the next step is to change policy rates. as we keep the exchange rate very stable, volatility in the fx market cannot be detected by looking at a chart of the exchange rate. instead it is reflected in the response of monetary policy. for example, if there is pressure on the krone to depreciate against the euro this will lead to a reduction in our foreign - exchange reserves and an increase in the

4, 200 billion. that is – believe it or not – 2½ times denmark's gross domestic product. that was what it took to rescue the banking sector and the danes'deposits. we don't want to end up in that situation again! the financial crisis showed that regulation is all - important if we are to have a robust financial sector. but also that regulation has a built - in paradox : in a world without regulation, trust is generally low. so a bank must be extremely strong if customers are to have confidence in it. page 5 of 9 in a world with regulation, trust in the financial system is high. and individual banks may be weak and just free - wheel. for many people – including myself – the financial crisis made it very clear that we had created a system where the banks reap the gains in good times. but when things go wrong, society and the tax - payers are left to foot the bill. in other words : in good times we have capitalism. in bad times – socialism. surely, there is something wrong. if a craftsman or an industrial enterprise is imprudent, the firm will close. owners and creditors will have to pay for the mismanagement and gambles. that is how it should be! also for banks! that is why danmarks nationalbank wants regulation that will allow banks to fail without passing the bill to society and its citizens. and we are moving in that direction. tax - payers should not pay for the banks'spirit of adventure. and for society it is of paramount importance that the financial system functions. that it is possible to borrow. that it is possible to save. that the value of money can be trusted. also during a banking crisis. * * * ultimately it is about making people feel secure. it is not about us who are sitting here in the banking hall today. but about all those outside this room. all those who are at work or at home – or who have gone on holiday. and who may not even know that danmarks nationalbank is 200 years old today. it was certainly a surprise to some of the people in the video shots we just saw. and that is okay – although we have actually done quite a lot to advertise this anniversary. a wish that was also expressed in the video. page 6 of 9 but basically, money and banks should simply function. ordinary people should not have to worry about that. you might say that when we do our work