20 kroner gold coins – the Scandinavian gold standard
Whilst it is maybe impossible to create a flawless monetary system, the Scandinavian Currency Union (SCU) formed by Denmark and Sweden in 1873 and which Norway joined later in 1875 was probably the closest to perfect monetary harmony that had ever been conceived between different countries.
Leading up to 1873, fundamental changes were occurring in global finance; silver, which for centuries had been the main currency for global trade, was gradually losing its hegemony as money to gold. The Latin Monetary Union that was based upon gold was established in 1865 between several European countries. Germany, which was a major trading partner of the Nordic countries, switched to the gold standard in 1871 with the introduction of the gold mark, and England, which was also important to Denmark and Norway in terms of trade, had adopted the gold standard in the early 1800s with the gold sovereign. Even the United States was on a pseudo gold standard from early 1834. The reason gold became the currency of choice was because of the yellow metal’s higher value-to-weight ratio, which meant that the cost of shipping and handling gold was less than that of silver. As countries began to exchange their monetary reserves by selling silver and buying gold, it naturally meant that silver in relation to gold was becoming less valuable.
It was against this backdrop that the three Nordic countries, whose monetary system was based on silver, began to contemplate switching to a gold standard. In addition, the fact that the three Scandinavian countries had a different system of counting, coupled with the different size and metal constitution of their silver coinage, complicated matters further. For example, Sweden used the silver riksdaler that was based on the decimal system, while Denmark with the rigsdaler and Norway with the speciedaler based their systems on fractions. These differences caused additional exchange costs and were a burden for merchants given the significant regional trade that was conducted between these three countries.
Consequently, in 1873, Denmark and Sweden decided to create the first Scandinavian currency union based on the gold standard. The new system stipulated that the “krone” in Danish and “krona” in Swedish (crown in English) was to become the new unit of account, with it being divisible into 100 öre. The denominations of 20 and 10 kroner were made of gold, with 1 kg of gold being equal to 2,480 kroner. In other words, 1 gold krone was set to equal 0.403 grams of gold. In conjunction with krone gold coins, silver kroner and, later, bank notes were introduced in the three countries. All Scandinavian kroner were deemed legal tender and were freely interchangeable at par at either of the central banks that were part of the SCU. An important aspect of this system was that whoever held silver kroner or bank notes was entitled to have them exchanged for gold at the central bank.
Even though the SCU system was standardised and the money in circulation was set to have uniformity of value, it was still decentralised. This meant that no central bank in the union controlled the flow of gold. For example, if Norway had a trade deficit with a country outside the union (the value of its imports was higher than the value of its exports), it then meant that to bridge this difference the country had to pay in gold. Thus, gold kroner would flow out of Norway. It is here that the remarkable beauty of the self-adjustment mechanism of the gold standard came into play. With gold flowing out of Norway, the country’s money supply (gold) would shrink, leading to deflation, i.e. lower prices. With Norway now having lower prices of its goods (in terms of gold), other countries would then be more interested in acquiring Norwegian goods, thus gold would flow back into the country, re-asserting the balance between the country’s output and its money supply.
This system worked so well that the three central banks did not even intervene in the financial markets (in contrast to today) for almost four decades, and besides proving to be extremely efficient and easy to maintain, it also helped to foster trade, and thus prosperity.
20 kroner gold coins fostered Denmark’s prosperity
The SCU was of great benefit to all its members. Financial costs were lower as the new standard and uniform currency proved to be less complicated than the former system. Exchange rates between these three countries were stable, which directly benefited merchants and the public at the expense of the speculator and, most importantly, inflation during the time of the SCU was almost non-existent. In fact, from 1873 to 1914, the average annual inflation rate was 0.1%, whilst real disposable income during the same timeframe increased by almost 100%!
This system provided the country with 40 years of stability, prosperity and peace. The 20 kroner gold coins were at the forefront of this period that saw Denmark transform itself into a modern industrial nation. The country’s growth of real wages during the gold standard was among the highest in the world. Its agricultural sector boomed, constituting over half of the county’s total exports by 1914. Foreign trade expanded enormously, Denmark became a net importer of capital – partially attributed to the stable monetary system – mortality rates dropped considerably, and major social reforms were undertaken. Considering all the above, this was a golden era in Denmark’s history, an era embodied in the 20 kroner gold coins.
However, golden eras tend not to last forever. With WWI raging, Sweden’s central bank thought it would be prudent to temporarily suspend the free movement of gold and the convertibility of paper kroner into gold kroner. Norway and Denmark’s central banks followed suit. The prerequisite for the functioning of this system was shutdown. It is not clear if this decision was an over-reaction on the part of the central bankers, who probably sought to safeguard the nations’ gold as the effects and outcomes of the war were unknown. However, their decision was the first nail, in a series of many, that would lead to the Union’s break up in 1924.
King Frederik VIII depicted on the second version of the 20 kroner gold coin
Frederik was born in 1843 in the Yellow Palace in Copenhagen. He was the eldest son of King Christian IX and the second king to be depicted on the 20 kroner gold coin. Following his military education he became Crown Prince of Denmark and received a seat in the State Council where he assisted his father in different governmental duties. In 1868, he married Princess Louise of Sweden who belonged to the Bernadotte dynasty, the same royal dynasty to which the current Swedish King Carl XVI Gustav belongs. Princess Louise was the first Swedish princess to be married into the Danish royal house since the 15th century and their marriage was seen as a way of creating friendship between Denmark and Sweden. Frederik served besides his father as crown prince for 43 years and ascended to the throne following his father’s death in 1906. The first 20 kroner gold coin to carry his effigy was released in 1908 and was stopped in 1912 when Frederik passed away. King Frederik VIII is remembered as a liberal ruler who, unlike his father, supported the new Danish parliamentarian system of government.