Annual Report 1993. Foreign Exchange Regulations

During 1993 it became clear that the foreign exchange regulations established by Eesti Pank within the framework of monetary reform have proven to be successful: in addition to some strict restrictions (surrender of foreign currency) it also included some liberalism (freedom to purchase and sell foreign currency and to use it for import transactions).

The liberalisation of foreign exchange policy that has been in progress parallel to the changes in the Estonian economy, was continued in 1993 as well and concluded on 21 December 1993 when the draft law for cancelling the Foreign Currency Law was approved by the Board of Eesti Pank.

The continuation of the liberal foreign exchange policy in 1993 was possible mainly due to trust in the Estonian kroon and the reserves backing it. Nevertheless, mention should also be made of other factors. The Estonian economy started to show signs of stabilisation and revival. The volume of exports increased and the balance of payments was in surplus (both as a whole and for current and capital accounts separately). It is extremely important that the decisions made by Eesti Pank to liberalise foreign exchange regulations had had no negative influence on the increase of foreign exchange reserves.

The proposal to cancel the foreign currency law, which would hasten cancellation of the remaining main restrictions on foreign exchange regulations, stated the decisive turn to an open economy as its main aim. The underlying idea of the proposal was to increase the credibility of the Estonian liberal and well-performing (free movement of capital) economy in the eyes of foreign investors.

Developing and changing normative documents governing foreign exchange regulations in 1993

The "Law on Changing the Foreign Currency Law of the Republic of Estonia", adopted on 26 January 1993, gave legal entities the right, with the permission of and according to the procedure established by Eesti Pank, to open foreign currency accounts with Estonian authorised banks. The Law also established that foreign currency accounts could be opened abroad only with the permission of Eesti Pank.

Opening of foreign currency accounts

On 1 December 1993 all restrictions and preconditions for opening foreign currency accounts with Estonian authorised banks that had been in force so far were declared null and void. Authorised banks and their affiliates were given an unlimited right to open foreign currency accounts for legal entities. Also, all restricting preconditions on opening accounts with foreign banks were abolished. In order to obtain information for compiling the balance of payments, a permission from Eesti Pank for opening accounts remained obligatory as well as the requirement to present Eesti Pank with a monthly report. However, application for the above permission became, in fact, a registration of accounts with Eesti Pank.

Bank licence for independent foreign operations

The Procedure for Giving Licences to Banks for Independent Foreign Operations adopted on 7 June 1993 gave a bank the right to apply for a licence enabling it to carry out independent foreign operations after 6 months of bank activities (earlier the required period had been one year). This was another step in the process of liberalisation.

Import and export of foreign cash

On 21 December 1993 the until then valid regulations for importing and exporting foreign cash, including the requirement to declare sums amounting to over 1000 German marks and the prohibition for companies to export and import foreign cash, were cancelled. At the present moment import and export of foreign cash is free from any limitations[1].

Transactions with non-convertible foreign cash

On 1 December 1993 all restrictions on transactions with non-convertible foreign cash were abolished (the set limit of difference between the purchase and sale rate, the right to sell and purchase non-convertible foreign cash only in a limited amount at border offices, airports and railway stations, the prohibition for legal entities to open accounts in the above mentioned currencies, the requirement of a licence issued by Eesti Pank for opening respective accounts with ruble-zone banks). As of the end of 1993 the only valid restriction prohibits single individuals from opening foreign currency accounts with Estonian commercial banks.

Foreign exchange regulations in practice

Simultaneous with bank licencing at the beginning of 1992, all licences for independent foreign operations issued to banks were re-considered.

On the basis of materials prepared by an appropriate committee, the Board of Eesti Pank gave foreign operations licences to 16 banks in the first quarter, 3 banks in the second quarter and 2 banks in the third quarter, i.e., 21 banks altogether.

By the end of 1993 the Estonian register of offices selling and purchasing foreign currency cash was finished. As of 20 December 1993 the register included 522 foreign currency exchange offices.

[1] That was the situation by the end of 1993. By now, additional regulations have come into force (March 18, 1994).