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 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. From the same date E.Aule, the Acting Minister of Provisioning, M.Pung, a lawyer from Tallinn, and on 18 March a well-known lecturer of economics J.Sihver formed the management of Eesti Pank. The first official meeting of the management, when it was decided to present the Interim Government with the proposal for approving members of the management of Eesti Pank, took place on 25 March. 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 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 downfall of the Estonian exchange rate. A more stable currency was needed for promoting development. 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 mistakes made during the previous years were not made: 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 Soviet of the ESSR of 15 December 1989. Rein Otsason was appointed President of the bank. Directly after re-establishment, Eesti Pank also 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.
Since 1 October 1991 Siim Kallas has been President of Eesti Pank.
TASKS OF EESTI PANK
The position of Eesti Pank in the Estonian economy is determined by the Law of the Central Bank of Estonia (Eesti Pank) passed by the Riigikogu on 18 May 1993, and the Statute of Eesti Pank adopted by the decision of the Board of Eesti Pank on 23 November 1993.
Eesti Pank is the central bank of the Republic of Estonia and legal successor to the Eesti Pank founded in 1919.
Eesti Pank has the sole right to issue Estonian currency. The tasks of Eesti Pank are:
- to manage currency circulation internally as well as with foreign countries, and to be responsible for maintaining the stability of Estonian legal tender;
- to hold the gold and foreign exchange reserves of Estonia and to provide directions as to their use;
- to carry out supervision over all credit institutions within the territory of Estonia;
- to act in cooperation with international monetary, banking and credit organisations and to maintain relations with the central banks of other countries;
- to carry out currency transfers of Estonian and foreign currencies, securities and other valuables;
- to compile the balance of payments for Estonia.
Eesti Pank is independent of other state institutions. Eesti Pank reports to the Riigikogu (the Parliament); it is not subordinated to the Government or to any other institution of executive state power.
The highest organisational level of Eesti Pank is the Board of Eesti Pank, which is comprised of the Chairman and eight members. The Chairman as well as the members of the Board are appointed for five years by the Riigikogu, except for the President of Eesti Pank and the Minister of Finance, whose membership shall terminate upon resignation.
The President of Eesti Pank is nominated by the Board of Eesti Pank and appointed for five years by the President of the Republic of Estonia.
Eesti Pank is prohibited from directly or indirectly crediting state or local budgets.