When German forces occupied Denmark on 9 April 1940, the Danish krone was used in the Faroes. However, all exchange between the Faroes and Denmark halted as a result of the occupation, leaving one currency to develop in two markets independently of each other. On 31 May 1940, special Faroese banknotes were introduced. They consisted of Danish notes with a special stamp. These notes replaced unstamped Danish at par.
From 14 October 1940, new banknotes were printed "on behalf of the National Bank of Denmark". The value of these new banknotes was the same as those already in use. On 18 December 1940, a Currency Central was established in order to monitor foreign trade and to secure the solvency of the Faroes. Currency Central was headed by a board of nine, the judge, who was chairman, one representative of Faroe Fish Export, one representative of the Faroese Merchants' Union, one representative of the bank Føroya Banki, one representative of the savings bank Føroya Sparikassi and four representatives of the Løgting.
On 18 December 1940, the Faroese króna was pegged to the British pound at a rate of 22.4 krónur = 1 pound. This rate was officially accepted by the British government in a treaty titled "Agreement between His Britannic Majesty's Government and the Administration of the Faroe Islands, for Regulating the Financial Relations between the United Kingdom and the Faroe Islands" which came into force on 27 March 1941. At the same time, the Board of the Currency Central was reorganized to only three members, one representative of the British Government, one representative of the State (referring to the State of Denmark, meaning the County of Faroe), and one representative of the Løgting or the parliamentary National Board. In 1941, coins were struck in London for use on the Faroe Islands.
As of 12 April 1949, the Faroese króna was separated from the pound sterling and fixed to the Danish krone at parity. This arrangement is still in effect. Although Faroese banknotes were issued "on behalf of the National Bank of Denmark", the National Bank of Denmark does not claim any rights to Faroese banknotes issued prior to 1951.
Read more about this topic: Faroese Króna
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