Annual Report 1994. Eesti Pank - 75

In 1994 Eesti Pank celebrated its 75th anniversary. That was an occasion for paying more attention to preserving the history of Eesti Pank and Estonian currency. A special 5-krooni coin was issued on 3 May 1994. With the support of Eesti Pank a book titled "Estonian Currency in 1918-1992" was published, a survey was compiled about the history of the Estonian currency and an exhibition "75 Years of Eesti Pank" was opened for the public.

The first Estonian currency - the Estonian mark - was introduced 9 months after the country achieved independence, i.e., in November 1918. Due to war and a difficult economic situation the mark did not become the sole legal tender at once. The czar, "Kerenski", East and duma ruble, as well as the Ostmark, German and Finnish mark were in circulation simultaneously with the Estonian mark. The concurrent circulation of several currencies was officially terminated from 20 May 1919. At that time Estonia possessed neither an independent banking system nor a central bank.

Eesti Pank was founded by a decree of the Interim Government on 24 February 1919, on which date the Statute of the bank was also approved. The draft statute was compiled by the then Minister of Finance of the Republic of Estonia, J.Kukk, and a candidate member of the Management of Eesti Pank, M.Pung. On 7 March 1919 the Interim Government decided to establish a 3-member committee, which commenced its activities as the interim management of Eesti Pank. Since the same day, E.Aule, the Acting Minister of Provisioning, M.Pung, a lawyer from Tallinn and, since 18 March, a well-known lecturer of economics J.Sihver formed the management of Eesti Pank. The first official meeting of the interim management took place on 25 March at which time it was decided to present the Interim Government with the proposal of approving the members of the management of Eesti Pank. On the basis of this proposal M.Pung was appointed the first President of Eesti Pank, E.Aule was appointed Vice President and J.Sihver was appointed Director. The Interim Government decided to allocate 10,000,000 marks from the Treasury as the equity capital of Eesti Pank. On 3 May this amount was entered into the books of Eesti Pank and the bank opened its doors to the customers.

The close relations of the monetary system with the state budget, burdening the central bank with investment loans and the lack of reserves for maintaining the mark resulted in the steep decline of the exchange rate of the Estonian currency. A more stable currency was needed. Thus, on 1 January 1928 the Estonian kroon was introduced, equal to 100 Estonian marks. The predecessor of the present Estonian kroon became a stable currency, for the mistakes made during the previous years were not repeated: the economy was no longer financed through Eesti Pank and adequate gold and foreign exchange reserves were created.

The activities of Eesti Pank were interrupted by the Soviet occupation in 1940. Eesti Pank was re-established from 1 January 1990 by the Decision of the Supreme Council of the ESSR of 15 December 1989. Rein Otsason was appointed the President of the Bank. Directly after its re-establishment, Eesti Pank fulfilled some commercial bank functions. By the decision of the Supreme Council of the Republic of Estonia of 19 December 1991 Eesti Pank was proclaimed the legal successor of the Eesti Pank founded in 1919. This status was internationally recognised and due to the firm stand made by numerous countries and central banks, Eesti Pank could use the regained gold reserves deposited by the pre-war Eesti Pank at the time of the 1992 monetary reform. The value of these reserves amounted to more than 193 million German marks. Gold was regained from the Bank of England (approximately DEM 81.6 m), Sveriges Riksbank (Bank of Sweden, approximately DEM 49.1 m), Bank for International Settlements (approximately DEM 18.3 m) and Federal Reserve Bank of New York (approximately DEM 44.1 m).

Since 1 October 1991, Siim Kallas has been the President of Eesti Pank.

Tasks of Eesti Pank

The main task of Eesti Pank is to guarantee the stability of the Estonian currency. A fixed exchange rate is the means chosen to do that.

The law (Law on the Backing of the Estonian Kroon) does not stipulate the simultaneous internal and external stability of the currency: the fluctuations of the real exchange rate inevitable for economies in transition often make it impossible to achieve both at the same time.

Eesti Pank has been called to secure the functioning of an effective banking and financial system. In this context a special role can be attributed to the fulfilling of the supervisory obligations set on Eesti Pank by law. However, it is of no less importance to solve other problems in the institutional development of the banking system and financial markets: issues like the new credit institutions' law, directing the development of the Estonian Investment Bank, the initial phases of setting up the Estonian export credit and guarantee institution, creating a more flexible environment for interbank settlement, etc. should be noted here.

Gathering unbiased and reliable economic information and preparing analyses and prognoses is an essential task of Eesti Pank. Eesti Pank compiles the Estonian balance of payment among other things.

The role of Eesti Pank in Estonian economy is established by the Law of the Central Bank of the Republic of Estonia adopted by the Riigikogu (the Parliament) on 18 May 1993 with amendments made to it on 5 April 1994 and the Statute of Eesti Pank approved by the Decision of the Board of Eesti Pank of 23 November 1993.