Bank of Estonia

The Bank of Estonia, known in Estonian as Eesti Pank, is the national central bank of the Republic of Estonia. It was established on 24 February 1919, soon after the country achieved independence, and became the country's national bank in 1921. During the interwar period it issued and managed Estonia's monetary instruments, supported the stability of the national currency, and helped organize the country's banking and credit system. The institution's first period ended after the Soviet occupation of Estonia in 1940. Its operations were taken over by the Soviet State Bank, and the Estonian mark was replaced by the Soviet ruble. Eesti Pank was re-established on 1 January 1990 during the late-Soviet period, but initially operated while Estonia remained within the ruble zone. It gradually developed independent policy and banking capabilities, including foreign-payment licensing, currency-market organization, monetary analysis, and oversight-related functions for the emerging market economy. After Estonia restored independence in 1991, the Bank of Estonia became the legal successor of the pre-war central bank and assumed the former Soviet State Bank branch in Tallinn. In 1992 it adopted a currency-board arrangement and introduced the kroon, Estonia's national currency, at a fixed exchange rate to the Deutsche Mark. The arrangement was designed to provide monetary credibility, constrain discretionary monetary expansion, and support the transition from a planned economy to a market economy. The bank's recovered interwar gold and foreign-currency reserves provided important backing for the new monetary system. Before euro adoption, the Bank of Estonia published domestic interbank reference rates, including TALIBOR and TALIBID, and performed the conventional functions of a central bank in a small open economy. It also participated in the resolution of the banking difficulties that affected several Estonian banks in 1992 after the collapse of access to assets held in Russia. Estonia adopted the euro on 1 January 2011. Since then, the Bank of Estonia has been part of the Eurosystem, alongside the European Central Bank and the national central banks of other euro-area countries. Monetary policy for the euro area is decided and implemented collectively within that system. Eesti Pank continues to contribute to monetary-policy preparation, economic and financial analysis, payment-system infrastructure, currency issuance and distribution, reserve management, financial stability, and official statistics. The bank is not Estonia's standalone financial supervisory authority; that role is primarily associated with the Estonian Financial Supervision and Resolution Authority. Nevertheless, Eesti Pank participates in European banking supervision through representation on the European Central Bank's Supervisory Board and is a member of the European Systemic Risk Board. Its present role therefore combines national central-bank responsibilities with participation in the institutional framework of the euro area.

The Bank of Estonia was founded by Estonia's provisional government on 24 February 1919, the first anniversary of the country's declaration of independence. In 1921 it was designated the national bank and received responsibility for issuing the Estonian mark. During the 1920s the institution was reorganized as part of an international stabilization program associated with the League of Nations. Revised statutes approved in 1927 gave Eesti Pank the character of an independent, note-issuing central bank with limited but clearly defined functions. Its principal objectives were to protect the value of the currency, regulate the supply of short-term credit, and maintain adequate monetary reserves. The interwar bank was supported by an international stabilization loan and by the transfer of state gold and foreign-exchange reserves. It also changed its operating structure, including the transfer of illiquid long-term loans to a separate long-term lending institution. Through the purchase and sale of government securities, Eesti Pank combined central-bank responsibilities with some of the activities of a joint-stock bank. Jüri Jaakson served as governor during much of the late interwar period. The Soviet occupation of Estonia in 1940 brought the first institution's operations to an end. The Bank of Estonia was closed, its functions were absorbed by the Soviet State Bank, and the Soviet ruble became legal tender. Estonian central-banking activity continued in exile in limited institutional form, but the domestic bank did not operate independently for nearly five decades. Eesti Pank was re-established on 1 January 1990 under legislation that gave the Baltic republics greater economic autonomy. Estonia was still part of the Soviet ruble zone, so the new institution could not initially conduct fully independent monetary policy. It nevertheless built policy expertise, organized currency auctions, published information about ruble circulation, licensed foreign payments and settlements, and began to address the needs of a rapidly emerging commercial-banking sector. It also took over the Estonian operations of Vnesheconombank, giving it experience in foreign-asset management. Clearing remained linked to the Soviet State Bank system in Moscow during this transitional phase. After the restoration of Estonian independence in August 1991, the Bank of Estonia took over the former Soviet State Bank branch in Tallinn and was recognized as the legal successor of the interwar central bank. In April 1992 it chose a currency-board framework, a decision intended to anchor expectations and reduce the risk of political interference in monetary expansion. On 20 June 1992 it introduced the second kroon, pegged at eight krooni to one Deutsche Mark. The conversion replaced almost all rubles circulating in Estonia and was supported by the return of interwar gold held abroad, including reserves returned through the Bank of England and the Bank for International Settlements. The bank also confronted the banking disruption of 1992. Several Estonian banks, including Balti Ühispank, Põhja-Eesti Aktsiapank, and Tartu Commercial Bank, lost access to assets in Russia. Eesti Pank helped manage the resulting banking crisis, which affected a substantial part of the country's monetary system without producing a comparable collapse in the wider economy. In the pre-euro period it published TALIBOR and TALIBID, reference rates for the Estonian kroon interbank market. Estonia joined the euro area on 1 January 2011. The Bank of Estonia consequently became part of the Eurosystem, while retaining its national institutional identity and responsibilities. Since then it has contributed to euro-area monetary policy, issued and distributed euro cash in Estonia, managed reserves, supported payment systems, produced statistics and economic analysis, and assessed risks to domestic financial stability. It is not Estonia's principal financial-supervision authority, but it participates in European banking supervision through the European Central Bank's Supervisory Board and contributes to the European Systemic Risk Board.

• 2011

  Estonia adopts the euro

  [1]Bank of Estoniaen.wikipedia.org

  The Bank of Estonia joined the Eurosystem when Estonia adopted the euro on 1 January.

• 1992

  Kroon introduced

  [1]Bank of Estoniaen.wikipedia.org

  The bank launched the kroon under a currency-board arrangement pegged to the Deutsche Mark.

• 1990

  Institution re-established

  [1]Bank of Estoniaen.wikipedia.org

  Eesti Pank was re-established while Estonia remained in the Soviet ruble zone.

• 1940

  Operations suspended under Soviet occupation

  [1]Bank of Estoniaen.wikipedia.org

  The occupying authorities closed the bank and transferred its functions to the Soviet State Bank.

• 1927

  Central-bank reorganization

  [1]Bank of Estoniaen.wikipedia.org

  New statutes established Eesti Pank as an independent note-issuing central bank with defined monetary and credit functions.

• 1921

  National-bank status

  [1]Bank of Estoniaen.wikipedia.org

  The bank became Estonia's national bank and was assigned responsibility for issuing the Estonian mark.

• 1919

  Bank founded

  [1]Bank of Estoniaen.wikipedia.org

  Estonia's provisional government established Eesti Pank on 24 February as the country's central banking institution.

Estonia's independent national central bank within the institutional framework of the Eurosystem.

• Central banking · 2011

  Monetary policy and Eurosystem operations

  The bank contributes economic analysis, policy preparation, and implementation activities to the Eurosystem. Since euro adoption, national monetary policy is part of the common framework set by the European Central Bank and the euro-area central banks rather than being determined independently by Eesti Pank.

• Currency services · 2011

  Euro cash issuance and distribution

  Eesti Pank participates in the production, issuance, circulation, quality control, and withdrawal of euro banknotes and coins in Estonia. These activities replaced the bank's former role as issuer of the Estonian kroon.

• Historical currency · 1992

  Estonian kroon

  The kroon was Estonia's national currency introduced by the Bank of Estonia on 20 June 1992. It operated under a currency-board system and was pegged to the Deutsche Mark before later being linked to the euro. The kroon ceased to be Estonia's legal tender when the country adopted the euro.

• Reference rates

  TALIBOR and TALIBID

  Before euro adoption, the Bank of Estonia published TALIBOR, the Tallinn Interbank Offered Rate, and TALIBID, the corresponding interbank bid rate. The rates were based on quotations from reference banks for different maturities in the Estonian kroon wholesale money market.

• Central-bank research

  Financial stability and statistical analysis

  The bank produces economic and financial analysis, official monetary and financial statistics, and assessments of risks affecting Estonia's financial system. It also contributes to European financial-stability institutions and banking-supervision structures.

• 2011

  Transition from the kroon to the euroProduct launch

  Background

  Estonia completed the process of joining the euro area after operating the kroon under a fixed-exchange-rate regime.

  Action taken

  The bank replaced the kroon with the euro and joined the Eurosystem on 1 January 2011.

  Aftermath

  Euro-area monetary policy became the common responsibility of the European Central Bank and Eurosystem national central banks, while Eesti Pank retained national operational and analytical functions.

  Source

• 1992

  Adoption of a currency-board arrangementStrategy

  Background

  Estonia was moving from the Soviet ruble system to an independent market economy and needed a credible monetary anchor.

  Action taken

  The Bank of Estonia selected a currency-board model and prepared the introduction of the kroon at a fixed exchange rate to the Deutsche Mark.

  Aftermath

  The kroon was introduced on 20 June 1992, establishing a rules-based monetary regime that supported Estonia's stabilization and transition process.

  Source

• 2011

  Bank of Estonia becomes a Eurosystem central bank[1]Bank of Estoniaen.wikipedia.org

  Other · Product generation

  Estonia adopted the euro on 1 January 2011, making the Bank of Estonia a member of the Eurosystem and transferring euro-area monetary policy to the collective framework led by the European Central Bank.

• 1992

  Estonia introduces the kroon under a currency-board system[1]Bank of Estoniaen.wikipedia.org

  Product launch

  The Bank of Estonia introduced the kroon on 20 June 1992 and linked it to the Deutsche Mark, establishing a rules-based currency-board arrangement during the country's transition to a market economy.

• 1990

  Bank of Estonia re-established during Estonia's late-Soviet transition[1]Bank of Estoniaen.wikipedia.org

  Leadership change

  Eesti Pank was re-established on 1 January 1990, initially operating inside the ruble zone while developing autonomous monetary, foreign-payment, and banking capabilities.

1. 1Bank of Estoniaen.wikipedia.org
2. 2Bank of Estonia official English websiteeestipank.ee