Bank of Estonia
Encyclopedia
The Bank of Estonia is the central bank
of Estonia
, which is a member of the European Union
organisation and the European System of Central Banks
. Until 2010, the bank issued the former Estonian currency, the kroon
.
based on the interest rate
s at which banks offer to lend unsecured funds to other banks in the Estonian wholesale money market
(or interbank market
). TALIBOR is published daily by the Bank of Estonia, together with TALIBID (Tallinn Interbank Bid Rate).
TALIBOR is calculated based on the quotes for different maturities provided by reference banks at about 11.00 am each business day by disregarding highest and lowest quotation and calculating arithmetic mean of the quotations.
. Two years later, Eesti Pank became a national bank and responsible for issuing the Estonian mark
.
A foreign loan
of GBP 1.35 million (27.6 million kroon) supplemented the foreign currency reserves, of which Eesti Pank received GBP 1 million. The gold
and foreign currency reserves of the State Treasury were also transferred to the central bank. The fixed capital
of the bank was increased from 2.5 million kroon to 5 million kroon. The sizes of the issues in relation to the reserves backing the kroon were determined. Long-term loans that had become illiquid were transferred to the Long Term Loan Bank, founded specifically for the purpose of releasing Eesti Pank from this burden. Upon the Soviet invasion of 1940, Eesti Pank was nationalized as "the Estonian Republican Office of the State Bank of the Soviet Union". With the nationalization and the introduction of the Russian ruble
as legal tender, it lost much of its functions.
: it began organising currency auctions, publishing quotations of the number of rubles in circulation, issuing licenses for foreign payments and settlements, etc.
was accompanied by the restoration of its rights to the gold and other assets deposited there. Reserve felling areas from the State Forest Fund worth 150 million dollars were also included in the balance sheet of Eesti Pank as an additional foreign currency reserve (although the latter had more a moral and an emotional value for the general public than a practical one).
) reached Estonia in April 1992. The Estonian kroon was pegged to the German to ensure stability. The German Bundesbank was informed of this. The Estonian kroon was declared the sole legal tender in circulation and Eesti Pank the only regulator of monetary relations in Estonia. Within three days, 1500 rubles were exchanged to krooni for each resident natural person
at the rate of 1 kroon = 10 rubles. Almost the entire amount of rubles in circulation in Estonia was exchanged to krooni at the same rate (deposits, money held by enterprises, etc.). The rate was considered under-priced by many opponents, but it actually corresponded to the market rate of that time. Time and the later course of events have indisputably proven the correctness of the choice made. All the laws and other legal acts planned for the beginning of the monetary reform came into effect. Eesti Pank began to publish daily exchange rates of the Estonian kroon against the most important foreign currencies.
. Other functions, as well as membership to the European System of Central Banks
remained.
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
of Estonia
Estonia
Estonia , officially the Republic of Estonia , is a state in the Baltic region of Northern Europe. It is bordered to the north by the Gulf of Finland, to the west by the Baltic Sea, to the south by Latvia , and to the east by Lake Peipsi and the Russian Federation . Across the Baltic Sea lies...
, which is a member of the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
organisation and the European System of Central Banks
European System of Central Banks
The European System of Central Banks is composed of the European Central Bank and the national central banks of all 27 European Union Member States.-Functions:...
. Until 2010, the bank issued the former Estonian currency, the kroon
Estonian kroon
In 1992, coins were introduced in denominations of 5, 10, 20 & 50 senti, as well as 1 kroon. The 1 kroon was struck in cupronickel, the others in aluminum-bronze. However, in 1997, nickel-plated steel 20 senti were introduced, followed by aluminum-bronze 1 kroon in 1998. 5 senti coins were not...
.
TALIBOR
TALIBOR stands for the Tallinn Interbank Offered Rate and is a daily reference rateReference rate
A reference rate is a rate that determines pay-offs in a financial contract and that is outside the control of the parties to the contract. It is often some form of LIBOR rate, but it can take many forms, such as a consumer price index, a house price index or an unemployment rate...
based on the interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s at which banks offer to lend unsecured funds to other banks in the Estonian wholesale money market
Money market
The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit,...
(or interbank market
Interbank market
The interbank market is the top-level foreign exchange market where banks exchange different currencies. The banks can either deal with one another directly, or through electronic brokering platforms. The Electronic Broking Services and Thomson Reuters Dealing 3000 Xtra are the two competitors in...
). TALIBOR is published daily by the Bank of Estonia, together with TALIBID (Tallinn Interbank Bid Rate).
TALIBOR is calculated based on the quotes for different maturities provided by reference banks at about 11.00 am each business day by disregarding highest and lowest quotation and calculating arithmetic mean of the quotations.
1919: establishment
The bank was established on 24 February 1919 by the provisional government of Estonia following the independence of EstoniaEstonian Declaration of Independence
The Estonian Declaration of Independence, also known as the Manifesto to the Peoples of Estonia , is the founding act of the Republic of Estonia from 1918. It is celebrated on 24 February, the National Day or Estonian Independence Day....
. Two years later, Eesti Pank became a national bank and responsible for issuing the Estonian mark
Estonian mark
The mark was the currency of Estonia between 1918 and 1928. It was initially equivalent to the German Papiermark, which had been circulating alongside the Russian/Soviet ruble since the German occupation. It was divided into 100 penni...
.
1927: Introduction of the first kroon
A new version of the Statutes was approved in 1927, according to which Eesti Pank became an independent note-issuing central bank with limited functions. The main tasks of the bank remained to guarantee the value of the money through currency circulation and through the arrangement and regulation of short-term credit volume. Through the sale of government securities, the bank became a true joint-stock bank.A foreign loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
of GBP 1.35 million (27.6 million kroon) supplemented the foreign currency reserves, of which Eesti Pank received GBP 1 million. The gold
Gold Reserve
Gold Reserve Inc. is a gold mining company with operations and mining property in Bolivar State, Venezuela.Founded in 1956, Gold Reserve Inc. is now headquartered in Spokane, Washington. The company has about ten employees at its Washington office and about 55 in Venezuela. Of these 55,...
and foreign currency reserves of the State Treasury were also transferred to the central bank. The fixed capital
Fixed capital
Fixed capital is a concept in economics and accounting, first theoretically analysed in some depth by the economist David Ricardo. It refers to any kind of real or physical capital that is not used up in the production of a product and is contrasted with circulating capital such as raw materials,...
of the bank was increased from 2.5 million kroon to 5 million kroon. The sizes of the issues in relation to the reserves backing the kroon were determined. Long-term loans that had become illiquid were transferred to the Long Term Loan Bank, founded specifically for the purpose of releasing Eesti Pank from this burden. Upon the Soviet invasion of 1940, Eesti Pank was nationalized as "the Estonian Republican Office of the State Bank of the Soviet Union". With the nationalization and the introduction of the Russian ruble
Russian ruble
The ruble or rouble is the currency of the Russian Federation and the two partially recognized republics of Abkhazia and South Ossetia. Formerly, the ruble was also the currency of the Russian Empire and the Soviet Union prior to their breakups. Belarus and Transnistria also use currencies with...
as legal tender, it lost much of its functions.
1990: Reestablishment
Eesti Pank recommenced operations on 1 January 1990 after an interval of 50 years, though not yet as the central bank of an independent country. The fact that it was possible to restore the central bank in spite of the fact that Estonia was not yet independent was a paradox of that time. The Statutes of Eesti Pank were confirmed in March 1990, and 400 million rubles were allocated for the statutory fund. According to the Statutes, Eesti Pank was an independent public organisation, an issue centre subordinate to the highest authority of the ESSR. The main tasks of the bank included the following:- developing an economic strategy for the country and its execution in the field of currency circulation
- the provision of credit, financing, settlements, and foreign currency relations
- management of the currency and credit system
- securing the stability of currency circulation; guaranteeing the purchasing power of the national currency and determining its exchange rate in relation to other currencies.
Foreign Trade Bank take-over
Eesti Pank took over the Tallinn branch of the Foreign Trade Bank of the Soviet Union, re-organising it into the Foreign Currency Operations Centre of Eesti Pank. The central bank also attempted to take other steps within its ability for the liberalisation of the economy and in order to make the transition to a market economyMarket economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
: it began organising currency auctions, publishing quotations of the number of rubles in circulation, issuing licenses for foreign payments and settlements, etc.
Introduction of regulatory function
At the same time it was necessary to begin transforming Eesti Pank into an actual regulator of the Estonian banking sector. At that time, settlements were performed through Moscow, the local Clearing Centre being subordinate to Moscow. In the first years, Eesti Pank was not yet able to regulate and inspect the operations of the local commercial banks.Reserves
The formation of reserves backing the kroon was commenced. After the recognition of Eesti Pank as the legal successor of the central bank of the Republic of Estonia, established in 1919 during the independence period, the government of Great Britain decided to return the gold that had belonged to the pre-war Eesti Pank to Estonia. The restoration of the membership of Eesti Pank in the Bank for International SettlementsBank for International Settlements
The Bank for International Settlements is an intergovernmental organization of central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks." It is not accountable to any national government...
was accompanied by the restoration of its rights to the gold and other assets deposited there. Reserve felling areas from the State Forest Fund worth 150 million dollars were also included in the balance sheet of Eesti Pank as an additional foreign currency reserve (although the latter had more a moral and an emotional value for the general public than a practical one).
Reintroduction of the kroon
The new banknotes (the second kroonEstonian kroon
In 1992, coins were introduced in denominations of 5, 10, 20 & 50 senti, as well as 1 kroon. The 1 kroon was struck in cupronickel, the others in aluminum-bronze. However, in 1997, nickel-plated steel 20 senti were introduced, followed by aluminum-bronze 1 kroon in 1998. 5 senti coins were not...
) reached Estonia in April 1992. The Estonian kroon was pegged to the German to ensure stability. The German Bundesbank was informed of this. The Estonian kroon was declared the sole legal tender in circulation and Eesti Pank the only regulator of monetary relations in Estonia. Within three days, 1500 rubles were exchanged to krooni for each resident natural person
Natural person
Variously, in jurisprudence, a natural person is a human being, as opposed to an artificial, legal or juristic person, i.e., an organization that the law treats for some purposes as if it were a person distinct from its members or owner...
at the rate of 1 kroon = 10 rubles. Almost the entire amount of rubles in circulation in Estonia was exchanged to krooni at the same rate (deposits, money held by enterprises, etc.). The rate was considered under-priced by many opponents, but it actually corresponded to the market rate of that time. Time and the later course of events have indisputably proven the correctness of the choice made. All the laws and other legal acts planned for the beginning of the monetary reform came into effect. Eesti Pank began to publish daily exchange rates of the Estonian kroon against the most important foreign currencies.
2011: Introduction of the euro
With the introduction of the euro on 1 January 2011, the function of the bank changed again as many of its monetary functions were taken over by the European Central BankEuropean Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
. Other functions, as well as membership to the European System of Central Banks
European System of Central Banks
The European System of Central Banks is composed of the European Central Bank and the national central banks of all 27 European Union Member States.-Functions:...
remained.
Chairmen
- Mihkel PungMihkel PungMihkel Pung was an Estonian politician and a former Minister of Foreign Affairs of Estonia and Speaker of the National Council from April 21, 1938 to July 5, 1940. Pung was arrested by during the Soviet invasion of Estonia and sent to a Sosva, a Soviet gulag in Sverdlovsk oblast...
(March 1919 – August 1919) - Eduard Aule (October 1921 – October 1925)
- Artur Uibopuu (October 1925 – November 1926)
- Jüri JaaksonJüri JaaksonJüri Jaakson VR III/1 was an Estonian businessman and politician....
(November 1926 – July 1940) - Juhan Vaabel (July 1940 – October 1940; ?)
- Martin Köstner (1944–1949; in exile)
- Oskar Kerson (21 January 1968 – 31 December 1980; in exile)
- Rein OtsasonRein OtsasonRein Otsason was an Estonian banker.-Biography:Rein Otsason grew up in Southern-Estonia. After obtaining secondary education he came to study in Tallinn and graduated in 1954 from Tallinn Polytechnical Institute as an economist...
(28 December 1989 – 23 September 1991) - Siim KallasSiim KallasSiim Kallas is an Estonian politician, currently serving as European Commissioner for Transport. He is also one of five vice-presidents of the 27-member Barroso Commission...
(23 September 1991 – 27 April 1995) - Vahur Kraft (27 April 1995 – 7 June 2005)
- Andres LipstokAndres LipstokAndres Lipstok is the current chairman of the Bank of Estonia...
(7 June 2005 – present) - Ardo HanssonArdo HanssonArdo Hansson is Estonian economist.Ardo Hansson is currently Chief of the World Bank's Economics Unit in China. Employed by the World Bank since 1998, Hansson has also worked with Eastern European and Balkan countries...
(to assume office 7 June 2012)
See also
- EuriborEuriborThe Euro Interbank Offered Rate is a daily reference rate based on the averaged interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market .-Scope:...
- RIGIBORRIGIBORRIGIBOR stands for the Riga Interbank Offered Rate and is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the Latvia wholesale money market . RIGIBOR is published daily by the National Bank of Latvia together with RIGIBID .-External...
- Estonian kroonEstonian kroonIn 1992, coins were introduced in denominations of 5, 10, 20 & 50 senti, as well as 1 kroon. The 1 kroon was struck in cupronickel, the others in aluminum-bronze. However, in 1997, nickel-plated steel 20 senti were introduced, followed by aluminum-bronze 1 kroon in 1998. 5 senti coins were not...
- Estonian markEstonian markThe mark was the currency of Estonia between 1918 and 1928. It was initially equivalent to the German Papiermark, which had been circulating alongside the Russian/Soviet ruble since the German occupation. It was divided into 100 penni...
- Economy of EstoniaEconomy of EstoniaEstonia is a member of the European Union and the eurozone and is an advanced economy, according to the IMF.Before the Second World War Estonia's economy was based on agriculture, but there was a significant knowledge sector and a growing industrial sector, similar to Finland...
- Economy of EuropeEconomy of EuropeThe economy of Europe comprises more than 731 million people in 48 different states. Like other continents, the wealth of Europe's states varies, although the poorest are well above the poorest states of other continents in terms of GDP and living standards. The difference in wealth across...