Eesti Pank Strategy 2022-2026

Like all the central banks of the euro area countries, Eesti Pank primarily helps the national economy develop sustainably by keeping inflation moderate. It achieves this by taking an active role in setting the single monetary policy of the euro area. It decides what the best monetary policy decision would be under any given circumstances by analysing thoroughly the processes that affect the euro area as a whole and the Estonian economy alone. Eesti Pank ensures the quality of its analysis and research by working together with other central banks and with research institutions and universities in Estonia and abroad. It maintains dialogues with the banks and businesses to gain an immediate feel for the development of the Estonian economy.

Although inflation in the euro area currently averages above 2%, it may be assumed that it will remain below its target level of 2% in the years ahead. For this reason monetary policy will continue to support the recovery of the economy and moderate inflation. It is however almost time to start discussing how to end the policy measures taken by the central bank during the pandemic like negative interest rates and large-scale asset purchases, and how best to support the long-term development of the euro area economy.

Eesti Pank supports the sustainable development and wealth of the Estonian economy by advising the government on key economic policy decisions. The knowledge needed to do this comes from the everyday analysis by the central bank of the economy and the financial sector, and from its participation in the work of the Eurosystem and in economic policy debates in the European Union.

On top of analysing the current state of the economy and forecasting its development over the coming years, understanding the long-term impacts of economic policy choices has become increasingly important. Thus issues surrounding climate change and climate policy have received increasing attention from Eesti Pank, both in its analysis and in its other activities.

Monetary policy is enacted by central banks through various transactions. The commercial banks in Estonia have access to liquidity loans and deposit facilities under the agreed Eurosystem terms. During lending, the financial soundness of banks as counterparties and the quality of their collateral are assessed. Demand from Estonian banks for ordinary and extraordinary monetary policy loans has increased and the central bank has in turn increased its capacity to make monetary policy transactions efficiently, which includes purchasing assets and accepting various forms of collateral. The central bank works together with market participants to make the Estonian capital market more varied and increase the range of possible collateral.

Eesti Pank invests in financial assets and uses the income earned to fund its own activities. Low interest rates make it harder for Eesti Pank to earn income from its reserves. Eesti Pank has reacted to changes in the operating environment and has diversified its risks by adding further asset classes to the investment portfolio. The aim of long-term investment activity by the central bank is to make sure that sufficient income is earned from investment to improve the capitalisation of Eesti Pank and its capacity to bear any losses that could arise from risk scenarios being realised. The goal beyond the strategy period is to bring the capitalisation of Eesti Pank into line with the average of the central banks in the Eurosystem. Eesti Pank has started preparations to apply the principles of sustainable and responsible investment when investing its reserves.

One goal of Eesti Pank is to back up the functioning of the financial system as a whole. Responsibility for micro level supervision of banks in the euro area lies with the supervisory authorities of member states, which is Finantsinspektsioon in Estonia, working together with the European Central Bank. Eesti Pank is responsible for macroprudential supervision and analyses and assesses the risks to the Estonian financial sector as a whole.

Eesti Pank has developed a macroprudential framework and set capital requirements and requirements for issuing housing loans in order to reduce the risks of the banks. To analyse better the risks to financial stability, the central bank focuses on improving its own analytical capacity. As the economy is recovering from the crisis, Eesti Pank is focusing on ensuring financial stability so that the financial sector is able to fund the investments that are needed, including those by the sectors hit most by the crisis. A rapid recovery poses the risk of imbalances appearing in some sectors. Eesti Pank pays particular attention to the risks in the real estate market and is ready if necessary to strengthen its macroprudential measures.

Eesti Pank operates payment and settlement systems and develops and oversees the payments market, which means the electronic circulation of money. Its goal is to work with market participants to ensure that the payments market in Estonia is efficient, safe, up-to-date, and supportive of innovation. Ensuring cyber security, minimising the risks to the smooth operation of the payment environment, and operating essential systems within the requirements set by the overseer are increasingly important in this. Eesti Pank carries out these tasks by working with authorities and market participants and helps to improve the legal framework for the payment environment and payment systems.

Eesti Pank is working to develop the payment environment by participating in the two-year research phase of the infrastructure and solutions for the Eurosystem’s digital euro. The central bank has an interest in helping to develop create the digital euro, which would allow market participants to produce competitive payment solutions that could for example operate alongside global card schemes, and use new and future-proof technology to serve the digital economy better and make security settlement and foreign currency payments more efficient.

Eesti Pank manages the TARGET2-Eesti interbank settlement system and arranges payments between banks providing vital services in an emergency. Eesti Pank is also involved in the operation of the securities settlement platform TARGET2-Securities and administers the instant payment platform TIPS (TARGET Instant Payment Settlement) jointly with other central banks of the euro area. Eesti Pank is working with other central banks of the euro area to develop TARGET services to make them easier for market participants to use and to provide a new unified service for collateral management.

Eesti Pank issues the notes and coins of the legal tender of the euro area. Eesti Pank manages cash circulation by making sure that demand for euro banknotes and coins is met and sufficient cash reserves are maintained, and that cash is of the appropriate quality and protected against forgery. Reducing the carbon footprint of cash production and circulation is becoming increasingly important.

There are common rules in the euro area to ensure the quality of cash in euros and trust in the euro. To prevent counterfeits from spreading and poor quality cash from circulating, Eesti Pank as manager of cash circulation supervises the operations of cash handlers, in which it monitors the authenticity of banknotes and whether they are fit for circulation, and applies the requirements for returning them into circulation.

Access to cash has been improved by the option of making withdrawals from shop tills, though the limited circulation of small denomination coins is a problem as people accumulate them without spending them. The central bank is looking for ways to bring coins back actively into circulation, as this would reduce the annual cost of minting coins and would indirectly reduce the detrimental effect of this on the environment and the costs of cash management. One task of Eesti Pank is to work together with market participants to ensure the functioning of the minimal distribution network to provide cash if there is an interruption to electronic payments.

Eesti Pank is responsible for compiling the statistics for the Estonian financial and external sectors and for the financial account. The central bank supplies the public with good quality, reliable, up-to-date and impartial information that is available for use in analysis, forecasting and policy setting. Eesti Pank also takes part in compiling statistics for the European economic and monetary union and in developing its statistical methodology.

The priorities in statistics in the coming years are developing a new information system and participating in designing the integrated reporting framework for monetary financial institutions across the monetary union and establishing it in Estonia. By developing the new information system for statistics the central bank makes itself better ready to cope successfully with the increasing volumes of data and additional statistical work.

The central bank needs a professional and effective organisation for it to carry out its functions successfully. It is a goal of Eesti Pank to have an attitude of openness and an efficiently run, innovative and responsible organisation. The bank also aims to be results-oriented and to make the best use of its resources.

To be an attractive employer, the central bank offers its staff contemporary and flexible working choices and development and career opportunities. New challenges for the bank are to improve the digital skills of the staff, develop management skills, and maintain team spirit while working remotely. To support the continuous learning of employees within their field, a budget is planned for training each year that allows staff to have at least five days of training a year.

Eesti Pank fosters a long-term career outlook for its staff that is based on both the long-term goals of the central bank and the development needs of its staff, including gaining various skills and experience by moving between jobs within the bank, the Estonian public sector, the European System of Central Banks, and international organisations. It encourages employees to contribute to the development of Estonia outside the central bank as well through discussions and presentations, to explain more widely the role and the nature of Eesti Pank, and to make maximum use of the knowledge of Eesti Pank.

Under the Eesti Pank Act, Eesti Pank advises the government on economic policy issues and the government does not take any important economic policy decisions without first listening to Eesti Pank’s opinion. Eesti Pank speaks mainly on questions of price stability and financial stability, but also on matters that affect the competitiveness and long-term growth of the Estonian economy and on which Eesti Pank is sufficiently knowledgeable, and that relate to the core functions of the bank.

The pandemic caused a substantial recession, from which the Estonian economy has recovered relatively quickly. Although the recovery has not been equal across all sectors, there is an increasing danger in the future of imbalances appearing in the economy that could endanger the sustainable development of the economy. Monetary policy is set in the interests of the euro area as a whole, and so other policy measures need to be used to ease the imbalances that may appear in Estonia. For its messages to be as clear and impactful as possible, the central bank is emphasising more than previously the need for understanding and dialogue with the public and partners.

Some choices that are important for the development of the Estonian economy are only indirectly connected to the main focuses of the central bank. Eesti Pank is ready to provide a discussion platform for experts in analysing such choices. To encourage debate and present better the work of the central bank, the Eesti Pank Museum is being updated and redesigned. The museum will be an open environment that is accessible to the public and to partners and it presents the economy and the operation of the financial system and the role in it of individual people, and also the work of Eesti Pank and the European Central Bank.

To improve the quality of the analysis of the financial sector, the statistics for the financial sector will be expanded and presented more actively to the public. This particularly means more thorough statistics on the non-bank financial sector and the development of payment statistics. The goal of payment statistics is to help with monitoring the risks of money laundering and terrorist financing across the financial sector.

1. Eesti Pank is relevant and influential in advising the government and taking part in debates on the economy, financial stability and sustainable development.
2. Eesti Pank provides a discussion forum for experts from outside the central bank to discuss important topics of economic policy.
3. The positions and opinions of Eesti Pank are trustworthy, timely, clearly worded and well-focused.
4. The Eesti Pank Museum is redesigned as a public forum.
5. Eesti Pank’s statistics cover a larger part of the financial sector and are more visible to the public than before, as this lets the central bank do its work more efficiently and improves the quality of public debate.
6. Eesti Pank updates and adjusts its macroprudential measures in response to changes in the economy and the financial environment.

The ability of Eesti Pank and other financial market participants to carry out their core duties in the event of various crises has become ever more important. Cyber attacks on the financial sector have become more common and have made it necessary to assess and improve the cyber resilience of critical systems of financial market infrastructure. To ensure the uninterrupted operation of payment services it is important to apply security measures in all of the information systems providing critical services.

The Eurosystem as supervisor has developed a strategy for cyber resilience to reduce the cyber risks to financial market infrastructure and the information systems of service providers. To improve the resilience of the Estonian financial sector to cyber attack, we are analysing the introduction of a new joint framework for testing cyber resilience in Estonia, and the role of Eesti Pank within this.

In the event of a banking crisis, Eesti Pank must be ready to provide extraordinary liquidity support for banks suffering liquidity problems to support the stability of the financial system and the capacity of the economy to recover from the crisis. The readiness of Eesti Pank to provide liquidity needs to be monitored regularly and the associated procedures must be kept up to date. A major part of the liquidity supply in both normal circumstances and crises comes from Eesti Pank’s capacity to accept various forms of collateral. It is planned to increase the capacity to accept collateral both independently and together with other central banks.

The Emergency Act requires that Eesti Pank (a) ensure interbank payments operate even if the interbank settlement systems that are normally used are not functioning; (b) organise the operation of card payments as a vital service; and (c) ensure that cash circulation functions. Eesti Pank should also be ready to meet an unplanned increase in the demand for cash, and must support the supply of cash to the public.

In ensuring cash services the central bank has to consider what is happening in the market, the changing business models of banks for providing cash services, and changes in the cash transport market. The continuity plans for cash circulation must be regularly tested. The central bank must also continuously assess the operation of vital payment services, including the card payment infrastructure, in a changing market situation, and must test its resilience in an emergency.

Although it is not the core aim of Eesti Pank to earn a profit, it is important to ensure the financial independence of the central bank. To achieve this, the investment portfolio has to be large enough and efficiently managed, and Eesti Pank has to be sufficiently capitalised. This guarantees the credibility and independence of the central bank.

The central bank pays more attention when taking investment decisions to the financial risks associated with monetary policy as well as to the financial risks associated with investment, which will require greater capacity to measure the risks of the portfolio.

1. Eesti Pank is ready to react in an emergency and to ensure the uninterrupted functioning of critical processes.
2. Eesti Pank is ready to ensure liquidity support for the banks and the operation of critical interbank payments.
3. Eesti Pank is ready to ensure the supply of cash in the country and, working with market participants, the operation of cash circulation in an emergency.
4. Eesti Pank is ready to organise the actions of the banks to ensure the smooth operation of card payments in an emergency and in the event of a temporary interruption to real-time authorisation.
5. Eesti Pank works on cyber security with state institutions and financial institutions and coordinates their operations to manage cyber risk and test cyber resilience.
6. Eesti Pank’s equity has been strengthened and the capitalisation of Eesti Pank is approaching the average in the euro area.
7. The financial risks to Eesti Pank are measured and managed using the best international practice.
8. Eesti Pank has increased its capacity to accept collateral.

Cyber attacks against companies and state institutions are becoming ever more complex and harder to identify. To be able to cope well with the changing dangers, Eesti Pank has drawn up an action plan for the organisation for improving cyber resilience. There has not yet been any incident that has threatened the IT systems of Eesti Pank and the bank will do everything it can to ensure that this remains the case in the future.

It is of prime importance for Eesti Pank to ensure the security of the central bank’s information systems, as preserving the assets and data of the bank and its ability to do its work depend on this. Security is built on risk assessment and the best internationally recognised standards and practices. Eesti Pank will work closely together with other members of the Eurosystem and other parties to ensure that an equally high level of security is maintained throughout the Eurosystem.

To achieve the goals of the central bank and develop the organisation of work, it is important to put in place the right solutions in the information system to digitise processes and automate routine work. It is important to make sure that staff can use the services of the information system in the same way whether they are working within the bank or remotely.

The knowledge and skills of the staff have to be improved for them to be able to use IT tools at work and remain security conscious while using the information systems.

1. Eesti Pank has met the definition of the European Central Bank’s Cyber Resilience Oversight Expectations (CROE) model for assessing the cyber resilience of financial institutions at the ‘advancing’ level.
2. Eesti Pank’s critical processes are able to function even if the provision of IT services within the buildings of the bank is interrupted.
3. The IT skills of Eesti Pank staff have improved.
4. The introduction of new technological tools has created new ways of digitising and automating processes at the bank.

One goal for Eesti Pank is to reduce the impact of its activities on the environment and to take account of the criteria for social and responsible corporate governance. The central bank analyses and publishes the impact that structural changes and risks arising from climate change and climate policy objectives have on the economic environment, financial stability, the legislative environment of the financial sector, the financing and competitiveness of the economy, and monetary policy and the investment of reserves.

Eesti Pank has started preparations to apply the principles of sustainable and responsible investment in response to climate change when investing its reserves, and assessed the risks to financial stability coming from climate change and measures taken to counter it. Eesti Pank joined the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in spring 2020 in order to gain international knowledge of this rapidly developing area and help advance it. In autumn of that year Eesti Pank signed a cooperation agreement with Tallinn University of Technology to assess and improve the energy efficiency of the historic bank buildings and apply smart building principles to them.

In the coming years the bank will participate in applying the taxonomy of the European Union and in analysing other measures and risks involved in the transition to sustainable financing. Eesti Pank will improve the skills of its staff in these areas. The central bank is ready to use the knowledge it has gained to advise the government and the public and to provide a platform for discussion on how climate change and sustainable development affect the activities of the central bank.

A related effort is to reduce the bank’s own carbon footprint as an organisation, and also the footprint of managing cash and reserves. The central bank plans to reduce the carbon footprint of cash by limiting the need to mint new coins, increasing the reuse of coins and submitting a proposal for rounding rules for purchases made in cash, which would reduce demand for one and two-cent coins.

Eesti Pank will apply for certification as a green office and set itself goals for responsibility and sustainability. Eesti Pank will learn from the experience of other Estonian institutions, central banks and international organisations, and will participate in networks and projects promoting sustainability.

The goal of Eesti Pank as an organisation to increase sustainability and responsibility in the coming years reflects the announcement by the Governing Council of the European Central Bank in July 2021 that it is strongly committed

• to further incorporating climate change considerations into its monetary policy framework;
• to expanding its analytical capacity in macroeconomic modelling, statistics and monetary policy with regard to climate change;
• and to including climate change considerations in monetary policy operations in the areas of disclosure, risk assessment, collateral framework and corporate sector asset purchases.

Eesti Pank prioritises the openness and inclusiveness of the organisation. It offers its staff opportunities for improving their health and gives them modern working conditions, including flexible work and long-term staff development. Eesti Pank guarantees equal treatment during hiring. Eesti Pank has issued guidelines for the professional behaviour of staff in order to avoid conflicts of interest. Members of the Executive Board are also bound by the code of conduct for high-level European Central Bank officials.

1. Every member of staff at Eesti Pank is aware of climate and environmental topics, at least as far as these affect their work.
2. Eesti Pank advises the government and the public and provides a discussion platform for topics surrounding how climate change and sustainable development affect the activities of the central bank.
3. Eesti Pank will receive certification as a green office in 2022 and renew it in 2025.
4. Eesti Pank will measure its carbon footprint in 2022 and work on ways of reducing it.
5. Eesti Pank will increase the reuse of coins and present proposals for legislative changes to allow rounding to be used for purchases paid in cash.
6. Eesti Pank will measure and publish the carbon footprint of its investment portfolio from 2022 and set a target level for it to be reached by the end of the strategy period.