Norwegian krone as a safe haven: the debate over moving euros out of the bank

Norwegian krone as a safe haven: doubts before exchanging 30,000 euros

When the euro wobbles, the question comes back: where to keep your savings so a bank freeze or devaluation doesn't eat them up? The scenario that peine this discussion was concrete: take 30,000 euros out of the account, exchange them for Norwegian kroner and put them back under the mattress. Norway, the argument went, is not in the EU or the euro, is a net creditor and lives off oil, gas, hydropower and fish. A country with an external surplus and a currency that doesn't drag the euro's liabilities along. The idea is appealing. The problem is that the chart for the last five years tells a different story.

What peine to the Norwegian krone in 2008

The collapse of the Norwegian krone in late 2008 did not come from Iceland, but from the crash in the price of oil in that period, according to one participant. The correlation with crude is the dead weight of the Norwegian thesis: when the barrel falls, the currency trinc. Anyone buying kroner as a safe haven is partly buying a bet on oil. And Norway's oil production forecasts for the coming years, which circulated at the time, were not exactly pointing upwards, as was noted in the thread.

Some argue that Norway has all the makings of a safe haven: institutional integrity, energy resources, fishing and the cleanest waters. Against it weighs the argument that an EU satellite country is not safe from contagion, and there lies the Icelandic case: Iceland was also in the top five for standard of living and wanted nothing to do with the EU either. The geographic umbrella is not waterproof.

Swiss franc vs Norwegian krone: what gold says

The most uncomfortable comparison came with two charts of exchange rates against gold over five years. All fiat currencies have been devalued against the metal, but some more than others, according to one participant's interpretation. The Swiss franc holds up better than the Norwegian krone, and Switzerland has a more diversified economy: its export markets in the US and Asia carry enough weight that the price of oil affects it relatively little. The Swiss central bank has long been artificially holding down the exchange rate against the euro to keep it from shooting up. That upward pressure is at once a sign of strength and a headache for its export economy.

The other strand of the analysis looks at the yuan. It is expected to rise, and the Chinese tend to ignore revaluation recommendations coming from Washington. The practical problem is that the yuan cannot be exchanged at Spanish banks, whereas Norwegian kroner can. Over-the-counter convertibility is a factor that rarely appears in analyses and decides more than it seems.

How much it costs to exchange euros for kroner over the counter

Here is the hole in the strategy. Exchanging over the counter can cost between 2% and 8% in fees or an unfavorable exchange rate, according to one participant. With 30,000 euros, that's an upfront bleed that eats up a good part of the safety margin. The alternative discussed: money market or short-term fixed income funds denominated in the currency, with fees around 0.5%, available through brokers or online banking. One example cited was the Nordea-1 Norwegian Kroner Reserve Fund.

The full calculation, fixing included, yields a surprising difference. If the bank applies a 1% fixing over the interbank rate, it's bearable; if it applies 4%, it's highway robbery in a suit. It's worth asking before saying yes. And watch out for the bank's own safe deposit box: in the event of a bank freeze, it gets confiscated, one participant warned.

Diversify or wait: the saver's positions

The discussion drifted toward allocation. Some defend diversifying: a portion in Norwegian or Swedish kroner and another outside the Old Continent, in dollars, Canadian or Australian dollars. The argument is that if the US went under, the substitutes wouldn't fare much better. Others put everything on gold: the only safe haven currency is the one not made of paper, and gold's all-time highs in Norwegian kroner back that up, as was argued. The third camp is the most skeptical: if the system goes down the drain, what will matter is who has the biggest guns.

The anecdote that sums up the mood: a branch deputy manager asked why not put the money in a fixed-term deposit. The answer was that a bank freeze and exit from the euro were expected within three months, with demand deposits spread across several currencies. She was told this in so many words.

Where the analysis gets stuck

Norway is a net creditor: it may lose everything, but it owes nothing to anyone. That is the strongest argument of the thesis, according to one of the participants. And yet, the currency remains tied to crude, and crude has cycles. The unanswered question is how much of Norway's strength is structural and how much is the price of the barrel dressed up as sovereign monetary policy.