Participation in decision-making in the Eurosystem and implementation of decisions
As a central bank of the Eurosystem, Eesti Pank participates in setting the single monetary policy of the euro area. The decisions needed for the single monetary policy to be implemented are taken jointly by all the central banks of the Eurosystem working together. For this reason high-quality analysis is needed both of the processes that affect the Eurosystem as a whole and of issues that affect only the Estonian economy. Eesti Pank experts analyse and make forecasts for the Estonian economy and take part in analysis, research and forecasting for the euro area economy. The purpose of economic research at the bank is to provide information that can be used in decisions on monetary policy and financial stability, and to give support to experts and managers from the central bank in discussions of economic policy.
Eesti Pank contributes to the stable development of the economy. It is our job to ensure that companies and households can make transactions and calculations using a currency with stable purchasing power. This is incompatible with high volatility in prices.
The decisions of the central bank about the price of money and how much of it there should be are passed on to households and businesses through the financial system. Monetary policy is enacted through the transactions of the central bank with the commercial banks, which issue loans and take in deposits. Implementing monetary policy means assessing the financial soundness of banks as counterparties and carrying out monetary policy operations.
Managing currency circulation
Eesti Pank's goal in managing the circulation of currency is to ensure that there is a sufficient amount of high-quality currency to meet demand, and that payment systems function reliably and without faults.
Together with the other central banks of the euro area and the European Central Bank, Eesti Pank issues the notes and coins of the legal tender of the euro area. Eesti Pank makes 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.
Payment systems are a central part of the financial infrastructure of an economy. Eesti Pank manages the TARGET2-Eesti settlement system, which is a technical platform for executing monetary policy and which is used for fast and secure interbank transfers of funds. To widen the possibilities offered by TARGET2, Eesti Pank is working with the other central banks of the Eurosystem on the TARGET2-Securities platform for settling securities.
Eesti Pank supports the development of payment environment by participating in designing the legal framework for it, and by working with market participants. It is the responsibility of Eesti Pank as overseer to assess how the payment systems meet international requirements and to make recommendations where necessary for how the systems could function better.
Safeguarding financial stability
Eesti Pank backs up the functioning of the financial system as a whole. It is necessary for the smooth running of the economy and for the ability of the central bank to implement successfully its monetary policy in order to maintain price stability that the financial system function well.
Eesti Pank maintains financial stability through macro-financial supervision by analysing and assessing the systemic risks to the financial sector and setting appropriate policies to manage those risks. The bank also by designs policies for the financial sector by helping write the law governing it and developing the framework for crisis management.
Maintaining financial stability requires close cooperation with organisations from Europe, the Nordic and Baltic states and Estonia. In 2014 the euro area will start a single supervisory mechanism for banking headed by European Central Bank, which will give additional duties to Eesti Pank in organising banking supervision.
Consultation and cooperation on questions of economic policy
It is Eesti Pank's job to support stable and sustainable economic growth in Estonia and the euro area. To this end, Eesti Pank advises the government and works with research institutions, central banks in other countries and international institutions. Analysis and research by the central bank are used by the government in deciding economic policy, and also by companies and households in making financial decisions. Successful consultation and cooperation require regular communication within the Eurosystem and also within international organisations and with the media, where Eesti Pank speaks for both Estonia and the Eurosystem as a whole.
Compiling statistics for the Estonian financial and external sectors
Eesti Pank is responsible for compiling the statistics for the Estonian financial and external sectors and for the financial account. As a producer of official statistics, the central bank supplies good quality, reliable, up to date and impartial information that is used in analysis, forecasting and policy setting, and is released publicly. Eesti Pank also helps compile statistics for the European economic and monetary union and works in developing new statistical methodologies.
Financial asset investment
For the central bank to be financially independent, it needs to maintain and invest its assets. Eesti Pank has a legal obligation to preserve and manage the national foreign currency reserves. The bank also has an agreement to manage the investment portfolio of the Guarantee Fund and is prepared to invest other long-term reserves of the public sector. Eesti Pank works with other central banks in the Eurosystem in managing the reserves of the European Central Bank.
The central bank is a long-term and conservative investor and is currently facing new challenges in an environment where interest rates on higher rated sovereign bonds have fallen to historically low levels. Eesti Pank has reacted to these changes by diversifying its risks via additional asset classes and investing in a few more bond markets in advanced countries.