For one, the peg reduces destabilising currency swings against  Page 5 of 7  the Euro. But it comes with the trade-off that it also eliminates currency movements that would have been warranted by macroeconomic fundamentals. It also removes the policy rate from the toolbox for targeting domestic financial conditions. This cost should not be overstated.
In a small open economy closely integrated with global capital markets, financial conditions will always to some extent be driven by global factors. 2 But a clear trade-off we have experienced is episodes where pressure on the krone required a change of the policy rate in the opposite direction to what would have been desirable from the point of view of domestic economic conditions.