Bank of Latvia

The Bank of Latvia, or Latvijas Banka, is the national central bank of Latvia. Its modern institutional history began in 1922, when Latvia's Constitutional Assembly adopted legislation establishing the bank and granting it the privilege of issuing the country's currency. The institution initially combined central-banking responsibilities with a broader economic-development role, including the possibility of extending short-term credit to industry and agriculture. Its early governance structure consisted of a council and an executive board, reflecting the institutional arrangements of the interwar Latvian state. The bank's original activities were interrupted by the Soviet occupation and incorporation of Latvia into the USSR in 1940. During the Soviet period, monetary issuance and treasury functions in Latvia were controlled through the State Bank of the USSR rather than through an independent Latvian central bank. Following the restoration of Latvian independence, the institution was re-established through banking legislation adopted in 1990 and 1991. A 1992 law formally confirmed the continuity and acquisition of the Bank of Latvia established in 1922, while subsequent legislation reinforced its independence from government policy and defined it as the country's central and issuing bank. Its former commercial banking operations were separated, with branches subject to restructuring and privatization. After independence, the Bank of Latvia managed the national monetary framework and issued Latvia's temporary Latvian ruble and later the restored lats. The lats was initially linked to the International Monetary Fund's Special Drawing Rights basket and was pegged to the euro from 2005. Latvia joined the European Union's Exchange Rate Mechanism II on 2 May 2005, beginning the required period of exchange-rate stability before euro adoption. The bank maintained the lats at a fixed euro conversion rate of EUR 1 = LVL 0.702804, within the applicable exchange-rate band. Latvia adopted the euro in 2014, after which the Bank of Latvia became part of the Eurosystem and the European System of Central Banks. Today, the Bank of Latvia's responsibilities extend beyond national monetary administration. As a Eurosystem central bank, it contributes to the common monetary policy of the euro area. It also performs important national and European financial-sector functions, including financial supervision, participation in European Banking Supervision, and membership in the supervisory structures of the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority. It is Latvia's designated national resolution authority and participates in the Single Resolution Board. It also represents Latvia in relevant European arrangements concerning systemic risk and anti-money-laundering supervision. The institution operates payment systems, supports the resilience of the financial system and publishes economic, monetary and financial information. Its research function produces analysis of Latvia's economy and the wider regional environment, while its data and statistics support public authorities, financial institutions, researchers and the public. The bank is governed through a council and an executive management board. Its administration is based in Riga, and its current governor is Mārtiņš Kazāks.

The Bank of Latvia was established during the first period of Latvian independence. On 7 September 1922, the Constitutional Assembly adopted the law creating the institution and granting it the right to issue currency. The Cabinet of Ministers approved interim statutes later that month, with initial capital set at 10 million lats. A permanent statute was approved by the Saeima in April 1923 and signed by President Jānis Čakste in July of the same year. The bank was governed by a council and a board and had responsibilities broader than those of a narrowly defined monetary authority, including the potential provision of short-term financing to industry and agriculture. The institution's independent existence was interrupted in 1940 after the Soviet occupation and incorporation of Latvia into the USSR. Banks and major industrial enterprises were nationalized, and monetary issuance and treasury functions were brought under the Soviet State Bank. The Latvian monetary system consequently operated as part of the centralized Soviet financial structure for several decades. As Latvia restored its independence, the central bank was re-established. In March 1990, the Supreme Council of the Latvian SSR adopted banking legislation and a decision defining the Bank of Latvia as an independent state bank, issuing center, central bank for commercial banks, budget-execution organizer and monetary-policy regulator. Its position was consolidated after the 1990 declaration on restoration of independence and the 1991 reorganization of banking institutions. In that process, the Bank of Latvia became the country's sole central and issuing bank and took over relevant assets and structures of Soviet-era banking institutions. A March 1992 law confirmed the acquisition and continuity of the Bank of Latvia founded in 1922. Further laws adopted in May 1992 established the legal basis for the modern central bank and gave it stronger independence from government policy. Because the new legal framework no longer provided for ordinary commercial banking, the bank's commercial operations and branch network were separated for restructuring and privatization. The restored institution issued the Latvian ruble from 1992 to 1993 and the lats from 1993 until Latvia entered the euro area. Its exchange-rate policy evolved from a peg to the SDR basket, introduced in 1994, to a euro peg implemented on 1 January 2005. Latvia joined ERM II on 2 May 2005 and maintained the lats at the fixed conversion relationship of EUR 1 to LVL 0.702804, with fluctuations managed within the applicable narrow band. This framework supported Latvia's preparation for monetary union. Latvia adopted the euro in 2014. The Bank of Latvia subsequently became a Eurosystem national central bank, contributing to euro-area monetary policy while retaining national responsibilities in supervision, financial stability, payments, statistics and research. It participates in European Banking Supervision, the European financial supervisory authorities, the Single Resolution Board, the European Systemic Risk Board and European anti-money-laundering governance. The bank's administration remains in Riga, and its research and statistical work provides analysis of Latvia's economy and the broader regional financial environment.

• 2019

  New governor appointed

  [1]Bank of Latviaen.wikipedia.org

  Mārtiņš Kazāks became governor, succeeding Ilmārs Rimšēvičs.

• 2014

  Latvia becomes a euro-area member

  [1]Bank of Latviaen.wikipedia.org

  The lats was replaced by the euro and the Bank of Latvia joined the Eurosystem.

• 2005

  Latvia enters ERM II

  [1]Bank of Latviaen.wikipedia.org

  Latvia joined the Exchange Rate Mechanism II as part of the process leading to euro adoption.

• 1992

  Institutional continuity confirmed

  [1]Bank of Latviaen.wikipedia.org

  Legislation confirmed the acquisition of the Bank of Latvia established in 1922 and reinforced its independence.

• 1990

  Central bank re-established in law

  [1]Bank of Latviaen.wikipedia.org

  Latvian legislation defined the Bank of Latvia as an independent state bank and national issuing center.

• 1940

  Independent operations suspended

  [1]Bank of Latviaen.wikipedia.org

  The Soviet occupation ended the bank's independent monetary role and brought Latvian banking under the Soviet State Bank.

• 1923

  Permanent statute approved

  [1]Bank of Latviaen.wikipedia.org

  The Saeima approved the bank's permanent statute, which was signed by President Jānis Čakste.

• 1922

  Bank established

  [1]Bank of Latviaen.wikipedia.org

  Latvia's Constitutional Assembly adopted the law establishing the Bank of Latvia and granting it currency-issuance privileges.

Latvia's independent public monetary and financial-stability authority, operating nationally and as part of the Eurosystem and European financial-supervisory architecture.

• Central banking · 1922

  Monetary policy

  The Bank of Latvia contributes to the Eurosystem's common monetary policy and formerly conducted an independent national monetary policy before euro adoption. Its historical toolkit included exchange-rate management, refinancing operations and interest-rate signaling. Before Latvia entered the euro area, the bank used a fixed exchange-rate strategy to support monetary stability and satisfy the convergence requirements associated with Economic and Monetary Union.

• Financial regulation · 1992

  Financial supervision and stability

  The bank performs national financial-supervisory and financial-stability functions within Latvia's European regulatory framework. It is Latvia's competent authority in European Banking Supervision and participates in the supervisory boards of the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority.

• Financial infrastructure · 1922

  Payment systems

  The Bank of Latvia supports and operates national payment infrastructure and related central-bank services. These functions help financial institutions settle transactions, maintain liquidity and access reliable payment mechanisms within Latvia and the wider European payments environment.

• Currency · 1922

  Currency issuance

  The bank issued Latvia's national currencies during periods when the country used its own monetary system, including the lats from 1922 to 1940 and again from 1993 to 2013, as well as the Latvian ruble from 1992 to 1993. Since euro adoption, currency issuance takes place within the Eurosystem framework.

• Research and data · 1922

  Economic research and statistics

  The Bank of Latvia produces economic and financial research, analysis and statistical information concerning Latvia and the surrounding region. This work supports monetary-policy understanding, financial-sector monitoring, public decision-making and research by external users.

• 2014

  Transition from the lats to the euroGeneration change

  Background

  Latvia completed the convergence process required for membership in the Economic and Monetary Union.

  Action taken

  The Bank of Latvia withdrew the lats as the national currency and began operating as part of the Eurosystem.

  Aftermath

  Monetary policy became a shared euro-area responsibility, while the bank retained national supervisory, payments, research and financial-stability functions.

  Source

• 2005

  Lats pegged to the euroStrategy

  Background

  Latvia was preparing for participation in ERM II and eventual adoption of the euro.

  Action taken

  The Bank of Latvia changed the lats' currency anchor to the euro and maintained the official conversion relationship at EUR 1 = LVL 0.702804.

  Aftermath

  The exchange-rate policy supported Latvia's convergence process and remained in place until euro adoption.

  Source

• 1994

  Lats linked to the SDR basketStrategy

  Background

  Following the restoration of independence, the Bank of Latvia sought a stable exchange-rate framework for the national currency.

  Action taken

  The bank implemented a policy linking the lats to the International Monetary Fund's Special Drawing Rights basket.

  Aftermath

  The policy provided an exchange-rate anchor before Latvia later moved to a euro peg and prepared for euro-area membership.

  Source

• 2019

  Mārtiņš Kazāks becomes governor[1]Bank of Latviaen.wikipedia.org

  Leadership change

  Mārtiņš Kazāks succeeded Ilmārs Rimšēvičs as governor of the Bank of Latvia.

• 2014

  Latvia adopts the euro[1]Bank of Latviaen.wikipedia.org

  Product generation · Other

  Latvia replaced the lats with the euro, and the Bank of Latvia became part of the Eurosystem's common monetary-policy framework.

• 2005

  Latvia joins Exchange Rate Mechanism II[1]Bank of Latviaen.wikipedia.org

  Other

  Latvia entered ERM II, a prerequisite stage for euro adoption. The Bank of Latvia maintained the lats against the euro within the permitted exchange-rate framework.

1. 1Bank of Latviaen.wikipedia.org
2. 2Official website of Latvijas Bankabank.lv