The Eesti Pank reserves allow the central bank to remain independent of the government and ensure that it has sufficient capital to cover any possible losses. More broadly, the reserves help ensure confidence in the monetary system of the euro area and underpin the stability of the Estonian economy and financial system.
Eesti Pank had 659 million euros of investment assets at the end of 20181. The bank’s invested reserves were in sovereign bonds of euro area countries, with 60 million euros of investment there at the end of the year. The foreign currency reserve of investments outside the euro area stood at 506 million euros in 2018. The foreign currency reserve consisted of 503 million euros of US, Australian and Canadian bonds. The equity portfolio was worth 93 million euros.
Eesti Pank holds 8250 Troy ounces or 256.6 kg of gold.
All the central banks of the euro area countries have foreign reserves and the Eurosystem can use those reserves if needed to regulate its exchange rate policy.
When Estonia joined the euro area in 2011, Eesti Pank transferred assets to the foreign exchange reserve of the European Central Bank, and there is now a claim of 103 million euros against the European Central Bank in the balance sheet of Eesti Pank.
1The size of the Eesti Pank reserves is restricted and limited by the agreement on net financial assets. The agreement has been signed between the central banks of the countries in the euro area and the European Central Bank. It sets out the rules and limits on financial assets not used for monetary policy that are used by national central banks for meeting their domestic responsibilities such as managing the central bank reserves. The net financial assets agreement is used to limit the ability of national central banks to create additional liquidity, in line with the goals of monetary policy. The amount of net financial assets depends on the size of both the assets and the liabilities on the balance sheet of the central bank. In 2018, Eesti Pank had net financial assets of -86 million euros on average.
In November 2019 Eesti Pank bought securities for a lesser amount than the central bank received from securities that reached maturity. When securities reach maturity they must be redeemed, meaning the institution that issued them must pay an agreed amount to the holder of the security. The central banks of the euro area have agreed to use reinvestment for the asset purchase programme, meaning that securities reaching maturity are replaced by newly purchased securities. Smoothing is used in reinvestment, which means that the total amount of reinvestment in a year is distributed evenly across the months regardless of the value of securities maturing in any given month.