Norway's krone: probably the best currency in the world

Denmark boasts "probably the best beer in the world" or so the famous Carlsberg advertisement would have us believe. According to HSBC, however, it's Norway that has "probably the best currency in the world". The krone is "the ultimate haven" and is set for "sustained appreciation".

It certainly looks appealing. Norway's economy grew by 1.4% in the fourth quarter and is expected to shrink by a modest 1.2% this year. The country boasts a current-account surplus of 5% of GDP, the biggest in the industrialised world, and a budget surplus of more than 12% of GDP. It has a sovereign wealth fund worth $350bn thanks to its oil revenues it is the world's fifth-biggest oil producer. Norway is a "surplus country" that can afford to get through this crisis, says Axel Merk of Merk Investments "an enviable position".

The authorities are highly unlikely to resort to quantitative easing as recent rate cuts are starting to work in a way they aren't in other economies, says Dale Thomas of Insight Investment Management. The cost of insurance against sovereign default in Norway is the lowest among the countries with the ten most frequently traded currencies, says Peter Garnham in the FT.

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However, it still appears tied to global risk appetite, given its traditional correlation with oil prices. Sustained outperformance is unlikely if oil prices stay low, says Gavin Friend of NAB Capital Partners, while Ashraf Laidl of CMC Markets says that it slid last autumn against the dollar and the euro during the global flight to safety after the collapse of US bank Lehman Brothers.

The fading appeal of the dollar, yen and Swiss franc may make the kroner a potential haven, but the safest currency of all remains gold.

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