NORWEGIAN MONETARY-POLICY IN A STATE OF F LUX

Should the emergence of euro as a common currency in EU have any impac t upon monetary policy in Norway? If the reallocation of wealth from o il to portfolio investments abroad makes for undesired appreciation pr essure on the Norwegian krone a case can be made for establishing a cu rrency board for the krone against the euro. With the accumulation of huge international reserves, in the state-owned petroleum fund, such a n arrangement should be credible. Allowing the euro to be legal tender in Norway would add to credibility. With a currency board a nominal a ppreciation of the krone is avoided. However, if a real one is called for, it would have to take place through domestic inflation. Provided that the krone is maintained as an independent currency, a good case c an be made for giving Norges Bank the task of stabilising the internal value of the currency, rather than the external one.