Scandinavian Monetary Union

The Scandinavian Monetary Union was an arrangement under which Sweden and Denmark, joined by Norway in 1875, adopted a common gold-based currency unit, the krona or krone, and accepted each other's coins as legal payment. Created in 1873, it worked smoothly for four decades, broke down during the First World War and was wound up in the 1920s.

The union is often cited as an early example of monetary co-operation between sovereign states. Its legacy is visible today in the shared name of the Swedish krona, the Danish krone and the Norwegian krone, even though the three currencies have long been independent.

Before the 1870s the Scandinavian countries used different silver-based units descended from the thaler: the Swedish riksdaler, the Danish rigsdaler and the Norwegian speciedaler. When the newly unified German Empire moved from silver to the gold standard in the early 1870s, silver began to lose value and countries that remained on silver faced the prospect of a depreciating currency. Scandinavian trade was closely tied to Germany and Britain, and moving to gold together was seen as cheaper and more convenient than doing so separately. Earlier pan-Scandinavian political sentiment also favoured a joint approach.

Sweden and Denmark signed the monetary convention in 1873. Norway took part in the negotiations but initially stayed out, then joined in 1875. Each country introduced a new unit, the krona (Swedish) or krone (Danish and Norwegian), divided into 100 öre or øre. It replaced the old units at simple ratios: one Danish rigsdaler became two kroner, one Swedish riksdaler became one krona, and one Norwegian speciedaler became four kroner.

The krone was defined as a fixed weight of gold, with 2,480 kroner struck from a kilogram of fine gold. Gold coins of 10 and 20 kroner had full metal value and were legal tender throughout the union. Silver and bronze token coins were also accepted across borders, although their metal was worth less than their face value. Each country kept its own central bank and issued its own paper money. Later agreements between the three central banks allowed transfers between them at par and led to the mutual acceptance of banknotes, which made the union closer to a single currency area. Iceland, then under Danish rule, used Danish currency during this period; the separate Icelandic króna emerged later.

For about forty years the system worked with little friction. Because all three currencies were tied to the same quantity of gold, the exchange rate between them was fixed in practice, and coins moved freely across borders. Strains appeared after Norway ended its union with Sweden in 1905, when Sweden's central bank withdrew from some of the arrangements for settling notes at par, but the core monetary standard remained in place.

The First World War ended the union in practice. In 1914 the members suspended the convertibility of their banknotes into gold, as most European countries did, and their wartime financial conditions differed sharply. Sweden, receiving large amounts of gold in payment for exports, stopped its mint's obligation to buy gold at the fixed price, and the Swedish krona rose above the Danish and Norwegian currencies. Once the three units were no longer worth the same, coins of the stronger currency were withdrawn from circulation in the weaker countries and token coins of the weaker ones flowed the other way.

After the war the members agreed to stop accepting each other's token coins, and by the mid-1920s the union had effectively ceased to operate. Sweden returned to gold in 1924 and Denmark and Norway in the later 1920s, but each did so separately, and all three left gold again in 1931. From then on the krona and the two kroner developed as separate fiat currencies.

The union is frequently compared with the larger Latin Monetary Union and with the euro. Historians note that it held together while members shared a credible commitment to gold, and came apart once wartime finance pushed their economies in different directions. Its most lasting effect is the krone/krona family itself, which remains in use in Sweden, Denmark and Norway.

• Sveriges Riksbank
• Danmarks Nationalbank
• Norges Bank