See also:

• Investment process
• Risk management
• Asset management
• Foreign exchange reserves of the European Central Bank

FOREIGN ASSETS

European Union treaties make depositing and managing foreign exchange reserves a key task of national central banks. All the euro area's national central banks have reserves that can be mobilised for the benefit of the Eurosystem's exchange rate policy, if needed. The existence of these reserves gives additional confidence in the euro area's monetary system and guarantees the material independence of central banks from their governments.

Following the monetary reform in 1992, Estonia's monetary policy was based on the strict principles of a currency board arrangement, which means that all the kroon liabilities of Eesti Pank had to be fully covered by liquid foreign assets. Membership rules for the euro area set out that since 1 January 2011 foreign assets only have to cover a part of the central bank's liabilities and some of the money may be issued to credit institutions as monetary policy loans. So while Estonian kroons were only issued against foreign currencies, banknotes in the euro area may also be issued against euro-denominated assets.

At the time of adopting the decision on Estonia's accession to the euro area, the foreign exchange reserves of Eesti Pank totalled almost 40 billion kroons, the majority of it being the assets backing the currency board. The foreign exchange reserves decreased before accession to the euro area owing to a change in the monetary policy framework, the lowering of the reserve requirement ratio for commercial banks.

With the adoption of the euro on 1 January 2011, Eesti Pank also carried out its obligation to transfer some of its reserves to the European Central Bank. European Union treaties state that all the central banks of the Member States who have adopted the single currency must transfer their foreign exchange reserves to the European Central Bank. The level of reserves is usually calculated in proportion to their share of the subscribed capital of the European Central Bank. In total, Eesti Pank transferred 145,853,596.60 euros of its foreign exchange reserves to the European Central Bank, and the equivalent sum is now reflected in the balance sheet of Eesti Pank as a claim against the European Central Bank. The European Central Bank pays interest to Eesti Pank on the sum that was transferred.

In addition to the foreign exchange and gold reserves, Eesti Pank's financial assets have included the security portfolio in euros, which has now become our domestic currency since we joined the euro area. The aim of the euro portfolio is to guarantee the material independence of the central bank from the government and the bank's independent operational functioning and to ensure sufficient capital for covering potential losses.

A small part, around 0.5%, of the financial assets is held in gold. On 31/12/2010 Eesti Pank had 8,250.171 Troy ounces of gold; that is 8,250.171 / 32.1507466 = 256.6 kg.