took place more than five years ago, and denmark ’ s fixed - exchange - rate policy today enjoys unique credibility in the market. the present central rate vis - a - vis the euro represents a conversion of the exchange rate between the d - mark and danish krone fixed in january 1987. why could we weather the storms despite all the arguments that the system is so vulnerable? the short reply is that we have taken great pains to follow the “ rules of the game ”. first, we have used monetary policy solely to stabilise the exchange rate - whether or not the necessary interest rate was appropriate in relation to the domestic economic situation. monetary policy has been earmarked for exchange - rate stabilisation. second, it is just as important that fiscal policy has “ come through ” - to use a modern expression. fiscal policy has been responsible for ensuring stable and credible macroeconomic development in the medium term. adjustments have been made primarily in connection with the annual finance acts. nevertheless, in isolated cases specific measures were required. the latest example is the whitsun package of economic measures in 1998. the other main point of criticism of fixed - exchange - rate regimes is that a flexible exchange rate is necessary to shield the economy from external shocks. the same argument is used against participation in a monetary union. the hypothesis is that a flexible exchange rate allows such external disruptions to be reflected in the exchange rate. following the ems crises at the beginning of the 1990s, a number of those countries which had to give in to speculative pressure chose to let their currencies float. this enabled them to use monetary policy - i. e. the interest rate - to stabilise domestic demand and thus inflation. a new inflation - management model was introduced in monetary policy, the so - called inflation targeting model. new zealand and canada had already applied this approach for some time. however, it was the bank of england and sveriges riksbank that primarily developed the principles of this policy in close cooperation with academia. central banks applying inflation targeting aim at influencing the economy by solely using the interest rate to keep inflation two years ahead within a defined interval, typically 2 or 2½ per cent plus / minus 1 per cent. the interest - rate decisions are taken by a committee based on economic projections, model calculations and personal assessments. the ecb has a clear objective of price stability which is interpreted as an inflation rate below but close to two per cent. the ecb ’ s interest - rate decision

small economies. if the exchange rate fluctuates too much, private individuals and companies are tempted to use one or more foreign currencies instead in order to achieve greater stability. in recent years the problems encountered by small currencies have led to growing interest in currency unions and common currencies, most notably reflected by the introduction of the euro. 4. conclusion in conclusion i would like to point out that a decision for the faroe islands and / or greenland to have their own currency can obviously be made. nevertheless, to protect such an independent currency from speculation and very strong fluctuation it must be strongly attached to another currency - the danish krone in these examples. as a consequence of this attachment the economic scope would not be greater than in the current situation where the danish krone is used as the currency of the entire danish commonwealth. i would like to end by emphasising that the financial markets are very sensitive to expectations of change. if a debate on the introduction of an independent currency is initiated on the faroe islands or in greenland, there is a risk that the debate itself would generate speculative movements. this could lead to a “ run ” on the local banks to transfer deposits to danish banks. it could also lead to extensive exchange of faroese bankotes for danish ones. the latter is a harmless phenomenon, but extensive transfer of deposits from local banks could entail considerable difficulties for the business community. monetary and foreign - exchange issues should therefore be approached with caution by the authorities. if a change is to be made, there must be an exact plan for the whole process and for how the currency will be anchored, that means how the value of the money will be protected under the new regime. the financial markets hate uncertainty, and money can be moved in an instant if uncertainty arises.