Denmark will soon mark a milestone unheard of in much of the world. On Monday, the Scandinavian country paid off its last foreign currency loan worth $1.5 billion. This is the first time in 183 years that the tiny country will be free of foreign debt obligations. According to the central bank of Denmark, the last time the country had nearly paid off its foreign currency loans was in 1894. That was when its foreign debt amounted to less than 1 percent of GDP.
Denmark first took on foreign loans in 1757 when it issued a loan worth half a million rigsdaler from Germany and the Netherlands. Since then, Denmark had foreign currency debt in order to build foreign currency reserves. However, currency intervention in recent years that was intended to hold the Danish krone to the euro, meant that the country’s foreign currency reserves were at a historical ceiling back in 2015. Denmark has had foreign debt obligations continuously since 1834.
The central bank released a statement on Monday saying that it “has not needed to raise any loans in foreign currency, and the loans have been gradually repaid.” Due to wars waged by the country in the 1800s, and then the deficit spending of the 1980s, foreign currency ballooned. But Denmark’s foreign debt obligations have shrunk since the 2008 financial crisis.
Being free of foreign currency debt does not mean that Denmark is free of all central government debt. It means that the debt is now denominated in Danish krone. Currently, Denmark’s debt-to-GDP ratio is one of the lowest among the major economies of Europe. According to the European Commission, it is currently at 38 percent and is expected to fall to around 36 percent in 2018.
"The sole reason why the Danish central government raises loans in foreign currency is to ensure that the foreign exchange reserve is sufficient. In recent years, the central government has not needed to raise any loans in foreign currency, and the loans have been gradually repaid," the bank statement declared. "The central government was close to repaying all foreign currency loans back in 1894 when the central government’s debt was as low as kr. 168 million, equivalent to just under 1 percent of GDP," the central bank said.