History of Eesti Pank

1918–1939: Establishment of Eesti Pank and its development as the central bank

24 February 1918
Members of the Estonian Salvation Committee headed by Konstantin Päts form the first government of the Republic of Estonia – the Provisional Government. The Republic of Estonia has been established. Events take place in the Tallinn office building of the former Russian National Bank, which is a symbol of the birth of Estonian statehood and a place where Eesti Pank later commences its activities.

24 February 1919
The Provisional Government takes a decision in its sitting organised to celebrate the first anniversary of the Republic of Estonia establishing Eesti Pank and approving its Statute. The State Treasury assigns 10 million marks for the fixed capital of the bank.

Eesti Pank develops into a national bank issuing banknotes and being under the control of the government. Eesti Pank takes care of monetary affairs and credit regulation of the state. By way of long-term investment loans the bank helps the impoverished economy of the state to get back on its feet.

At the beginning of the independent Republic of Estonia several securities issued by different institutions are used as national legal tenders: payment notes from the Clearing House of Tallinn, short-term treasury bills bearing a 5% interest rate and state treasury notes.

Mihkel Pung

25 March 1919
The government appoints Mihkel Pung as the first Governor of Eesti Pank.

3 May 1919
The bank’s fixed capital of 10 million marks is registered in the ledger of Eesti Pank and the first sum of money is transferred to the current account. Eesti Pank commences its activities. This date is considered the birthday of Eesti Pank.

March 1921
Eesti Pank starts issuing the first banknotes – Estonian marks. At the same time, Eesti Pank is the largest commercial bank in Estonia engaged in regular deposit and lending activities. In intense competition with other banks, Eesti Pank almost doubles its loan portfolio and almost triples its deposit amounts compared to the other commercial banks.

In accordance with the Statute of Eesti Pank, the Estonian mark must be based on gold, but real coverage comes up short and, therefore, banknotes issued are actually paper currency with no cover. In 1924 the exchange rate of the dollar already exceeds the level of 400 marks. A decrease in the exchange rate of the mark is also influenced by currency speculations (transactions made only to benefit from changes in exchange rates).

However, the situation improves little by little. The preparations for monetary reform started in 1923 provide strong impetus for this. The crisis of the first period of activity of Eesti Pank clearly shows that such voluminous financing of the economy does not enable the central bank to efficiently perform its primary function – to ensure the stability of money.

20 June 1924
As the first step towards monetary reform, the Riigikogu legalises a new accounting currency unit – the gold kroon. The gold kroon is divided into one hundred marks and equals the gold content of the Swedish krona, i.e. 0.403226 g of pure gold. All the loans in Eesti Pank and private banks are revalued into kroons. Loan contracts may thereafter be entered into in kroons. Liabilities must still be paid in marks and at the daily exchange rate determined by the stock exchange. This puts a limit on currency speculation and increases trust in the Estonian mark. Stability is even more strengthened by the monetary and banking reform of 1927–1928.

6 November 1926
Jüri Jaakson
is appointed the Governor of Eesti Pank.

Jüri Jaakson in his office

3 May 1927
The Riigikogu approves the new Statute of Eesti Pank and adopts three laws required to reorganise the activities of Eesti Pank and implement the monetary reform: the Currency Law, the Law on the Termination of Issuing State Treasury Notes and Exchange Notes and the Foreign Loan Law.

The League of Nations grants Estonia a loan in the amount of 1.35 million British pounds for the purpose of the monetary reform, of which 1 million pounds is assigned to Eesti Pank to base the kroon on the gold standard and 0.35 million pounds to operating capital of the Long-term Loan Bank which is to be founded. The latter was established in order to release Eesti Pank from long-term loans that had become illiquid (encountered difficulties). The government and Eesti Pank set off all mutual receivables and payables.

1 January 1928
Eesti Pank commences activities in accordance with the new laws. The Estonian kroon, divided into 100 cents, becomes legal tender. The gold content of the kroon is 0.403226 g, as per the gold kroon. The gold standard established in 1924 remains unchanged, but acquires real security i.e. a reserve.

With the help of the monetary reform, an up-to-date monetary system was established in Estonia. Eesti Pank operates as an independent currency-issuing central bank with limited functions. The primary function of the bank continues to be the reinforcement of the value of currency. To ensure that the bank is independent of the government, an Assembly and a Supervisory Board of Eesti Pank consisting of ten members are constituted. The Governor is the executive director of the bank and the Executive Board is the executive body. Eesti Pank is transformed into a joint-stock bank by selling the shares of the government.

The fixed capital of the bank is increased from 2.5 million kroons to 5 million kroons. Gold and negotiable foreign funds exempt from liabilities are included in the reserves. Pursuant to the new Statute of the central bank, the banknotes in circulation and other constant liabilities of the bank must have at least 40% cover. The issue of state treasury and exchange notes is terminated. Eesti Pank is required to exchange kroons for foreign currencies to ensure the reliability of the kroon.

The global economy shows the first signs of crisis soon after the issuing of the kroon. England gives up the gold standard in autumn 1931. Keeping in mind the extent of economic relations and stability of economic partners, most of the reserves backing the kroon are invested in British pounds and this causes the inevitable devaluation of the Estonian kroon.

28 June 1933
The Estonian kroon is devalued by 35% due to the global economic crisis.

From 1 November 1933 the exchange rate is 1 British pound = 18.35 Estonian kroons. The reserves, i.e. gold and negotiable currencies, increase from 46% in 1933 to 59% in 1938 in comparison with liabilities.

Executive Board of Eesti Pank in 1938

The Estonian kroon remains stable and reliable at both the international and national levels in the increasingly complicated circumstances at the end of 1930s. The devaluation and improved economic situation of foreign markets have a stimulating effect on the state’s manufacturing and export activities and the economic recovery that started in 1934 continues year by year at an accelerating pace. The stability of money, the well-functioning monetary system and the smooth operation of banks ensure public trust (e.g. savings are invested in banks). World War II disturbs economic activities to some extent, but does not yet jeopardise the activities of Eesti Pank and the development of the national economy as a whole. The rate of exchange of kroons to British pounds remains stable until 1940, but unfortunately the invasion of Estonia by foreign powers discontinues the development that has run so smoothly.

Jüri Jaakson laying the cornerstone of the main building of Eesti Pank on 30 September 1933

1940–1989: Liquidation of Eesti Pank and occupation

After the occupation of Estonia in June, Soviet authorities appoint Juhan Vaabel as the so-called Governor of Eesti Pank on 19 July. Estonia’s puppet government gives an order to sell the gold of Estonia deposited in Sweden and England (2.9 and 4.8 tonnes, respectively) to the State Bank of the Soviet Union and to transfer the currency reserve to the account of Eesti Pank in the State Bank of the Soviet Union. Sweden immediately waives the gold and England does so in 1969, but the Soviet Union will never get the gold deposited with the Swiss Bank of International Settlements (3.3 tonnes).

The government instructs that Eesti Pank must grant the State Bank of the Soviet Union 10 million kroons in credit with no interest, which is increased to 20 million kroons in August.

10 October 1940
Eesti Pank is nationalised. The assets and liabilities of the bank are delivered to the State Bank of the Soviet Union and the assets of shareholders are alienated. The bank is reorganised into the Republican Office of the State Bank of the Soviet Union. The position of the Governor is eliminated and Juhan Vaabel is dismissed.

November 1940
The exchanging of kroons and kroon deposits for roubles commences at the exchange rate of 1 kroon = 1.25 roubles, although the actual purchasing power of the kroon is 1 kroon = 8–10 roubles.

August 1941
German troops occupy the continental part of Estonia. The name of Eesti Pank is restored, but it principally operates under the control of the German occupation authorities. The bank manages the turnover of the occupation currency, renders services to local government authorities, etc.

2 January 1943
Eesti Pank is reorganised into a sub-unit of the Gemeinschaftsbank Ostland in Riga under the name of Gemeinschaftsbank Estland.

Hugo Pärtelpoeg

18 September 1944
Otto Tief
’s government is established in the building of Eesti Pank (the former Knighthood Bank at Estonia pst 11, Tallinn). The Minister of Finance of this government is Hugo Pärtelpoeg, one of the senior officials in the bank at the time.

After the reinstatement of Soviet power, roubles circulate at state-approved prices across the territory of the Soviet Union on a more or less similar basis. On the other hand, economic conditions, incl. centralised supply of goods, differ wildly by region for several reasons. In such a situation it is impossible to use money as a means of regulating the economy. Even funds assigned in the state budget for certain purposes acquire real meaning only when actual amounts of money come with it. The economic power belongs to those dividing specific sums and the currency has no real power.

1989–1992: from re-establishment to monetary reform

26 September 1987
The Edasi newspaper publishes an article by four men – Siim Kallas, Tiit Made, Edgar Savisaar and Mikk Titma – entitled “Proposal: the Estonian SSR Transferring to Full Self-Management”. Among other things, this gives rise to the re-establishment of Eesti Pank and the re-introduction of a national currency.

Rein Otsason

28 December 1989
Eesti Pank is established in December 1989 on the basis of the Bank Law of the Estonian SSR, which is adopted while Soviet rule is still in force. On the day of adoption of the law, Rein Otsason is appointed as the first Governor of Eesti Pank. The central bank operates according to the Bank Law of the Estonian SSR until June 1993 and commercial banks until January 1995. Banks follow the legislative acts and chart of accounts established by the State Bank of the Soviet Union.

1 January 1990
Eesti Pank commences work again after a pause of fifty years. The situation is complicated, because the statehood of Estonia has not yet been restored and, in addition to Eesti Pank, another central bank operates in Estonia. The initial idea of making the transition to the national currency by the end of the same year, 1990, cannot be implemented.

22 January 1990
The Presidium of the Supreme Soviet appoints the first Supervisory Board (consisting of five members) of Eesti Pank. The then Supervisory Board performs functions placed within the authority of the Executive Board of the central bank today. The tasks of the re-established Eesti Pank are not entirely clear at first. Under the resolution of the Supervisory Board, loans are granted to state and private companies, the maturity dates of which must later be postponed due to the deep economic crisis. Some bad debts are even written off.

28 June 1990
The first currency auction of Eesti Pank is held. There are three bidders and buyers. The US dollars are bought at a price of 27 roubles. As the official exchange rate of the dollar is still 62 kopeks in the Soviet Union, the price differs 43.5 times in the auction. Moscow’s reaction to the results of the action is painful. Nevertheless, the auctions of Eesti Pank become a recognised currency exchange point across the former Soviet Union, where the number of participants amounts at times to 120–140. Eesti Pank organises currency auctions until August 1991. The experience gained is used later in preparing and implementing the monetary reform.

Summer 1990
The Supreme Soviet (the Parliament) of the Republic of Estonia assigns the government and Eesti Pank the task of presenting a concept and action plan of the monetary reform. Both the government and Eesti Pank find that the Parliament and government are not entirely appropriate institutions to prepare the detailed plan of the monetary reform. Therefore, a proposal to form a Monetary Reform Committee with extensive authorities is added to the concept of the government.

27 March 1991
The Supreme Soviet of the Republic of Estonia decides to establish the Monetary Reform Committee with members Edgar Savisaar (Prime Minister), Rein Otsason (Governor of Eesti Pank) and an independent scientist – initially Siim Kallas, later Rudolf Jalakas. The Committee is granted powers to organise the monetary reform. The powers are effective until 29 June 1995 and the Committee is required to report to the Parliament.

20 August 1991
The independence of Estonia is restored. Eesti Pank commences work to resolve all of the conceptual, strategic, tactical and technical matters of the monetary reform in order to organise the reform in the first half of 1992.

Siim Kallas

1 October 1991
Siim Kallas assumes office as Governor of Eesti Pank

October 1991

Arnold Rüütel, the Chairman of the Supreme Soviet of the Republic of Estonia, grants Siim Kallas, the Governor of Eesti Pank, authority to represent Estonia in negotiations with the Bank for International Settlements and countries in whose banks the gold of Eesti Pank has been deposited as reserves backing the kroon.

December 1991
The Supreme Soviet of the Republic of Estonia declares Eesti Pank the legal successor of the Eesti Pank established in 1919. Negotiations with London, Stockholm and Basel begin to regain the gold of Estonia and thereby support preparations for the monetary reform.

January 1992
The government of Great Britain is the first to return the gold of Estonia delivered to the Soviet Union in 1967: the decision is made in January 1992 and the return is formalised in spring of the same year. As negotiations with Sweden and Switzerland to get the gold back take time, but it is not expedient to postpone the introduction of the monetary reform, there is a need to form a temporary reserve. In consultations held with Arnold Rüütel, a proposal is made to establish the currency reserve of the Republic of Estonia on account of the reserve cutting areas of the national forest fund. The Supreme Soviet approves the formation of the reserve known as the kroon forest by a resolution of 23 January 1992. The reserve includes cutting areas to a value of 150 million US dollars. However, it is not necessary to use the reserve based on the kroon forest and the importance thereof is limited to the creation of an emotional background. In June 1997 the Riigikogu declares invalid the decision of the Supreme Soviet of 1992 according to which part of the national forest fund has been assigned to Eesti Pank as a currency reserve.

25 May 1992
Estonia becomes a member of the International Monetary Fund (IMF). The corresponding application was submitted on 9 September 1991, immediately after the restoration of independence of Estonia. The IMF plays a significant role in developing the ideology of the Estonian monetary reform of 1992.

Siim Kallas, the Governor of Eesti Pank (pictured centre), signing the document.
Source: Vambola Salupuu

June 1992
In June 1992 the rights and obligations of Eesti Pank as the founding member are restored in the Bank for International Settlements in Switzerland and this also provides Eesti Pank with access to the gold deposit in New York in January 1993. Sweden returns the gold to Estonia on 1 July 1992.

9 June 1992
By a resolution of the Supervisory Board of Eesti Pank, Siim Kallas and Ülo Uluots, members of the Supervisory Board, are assigned the task of presenting a proposal to the Supreme Soviet of the Republic of Estonia to appoint Ardo Hansson and Raimund Hagelberg as substitutes for Rudolf Jalakas, an independent scientist who is a member of the Monetary Reform Committee of the Republic of Estonia, if the latter is unable to perform his obligations.

17 June 1992
The Supervisory Board of Eesti Pank decides to establish 15% as the reserve requirement ratio for banks.

18 June 1992
The Supervisory Board of Eesti Pank approves the guidelines for foreign currency transactions between Eesti Pank and authorised banks, new rules of import and export of foreign currencies and several other documents dealing with foreign currency transactions.

1992–1995: monetary reform and first years of restoration of independence

The time that preceded and followed the monetary reform of 1992 was complicated for both the Estonian economy and the financial system. The amount of foreign currency reserves of the central bank was only around 2.5 billion kroons, from which the excess reserve above the currency board totalled around 590 million kroons. The average monthly salary was little over one thousand kroons and inflation increased to 1077% in 1992. It was necessary to regulate the banking sector under these circumstances and create a legal framework functioning in the conditions of a market economy.

During the early years after monetary reform, the undeveloped legal environment was a major problem for Estonian banking supervision. Until the end of 1994, there was no Accounting Act or Commercial Code corresponding to the current requirements in Estonia. The backwardness of the general legal environment considerably limited the legal possibilities of banking supervision to require that banks operate in accordance with the modern risk approach. In January 1995 the first modern Credit Institutions Act entered into force.

Exchange of money in Tallinn Secondary Science School on 20 June 1992.
Source: Erik Prozes 

20 June 1992
The first and most radical monetary reform of the former states of the rouble zone is carried out in Estonia. This date marks the actual restoration of the economic independence of Estonia. The Estonian kroon is declared the sole legal tender and Eesti Pank the only regulator of monetary relations in Estonia. The official exchange rate of the Estonian kroon against the German mark is fixed at DEM 1 = EEK 8.

Starting from the monetary reform, a monetary system based on strict rules of the currency board is applied in Estonia, which successfully lasts until Estonia joins the euro area at the beginning of 2011.

1 April 1992 – 1 October 1992
Banks using computer connections are gradually switched into the uniform communications network. To accelerate settlements, the requirement to make domestic settlements within 48 hours is established. By way of comparison: In the 1990s, before the monetary reform, payment documents were delivered to Eesti Pank on paper, data were then entered on punch cards or tape and only then were they inserted in the computer. Account statements were transferred to banks the next day. It took days to make settlements involving branches further afield.

September 1992
Eesti Pank publishes the first balance of payments of the state following restoration of independence, dealing with the first half of 1992.

October 1992
A net settlement system of Eesti Pank (EPNAS) is launched where any payment information is communicated via a modem.

Uno Mereste

21 December 1992
Uno Mereste
is appointed as the Chairman of the Supervisory Board of Eesti Pank.

January 1993
Eesti Pank launches a short-term money market project meaning that banks can offer available funds to other banks and request short-term loans from other banks on the market.

To strengthen the trust between banks, Eesti Pank starts issuing loan certificates with a nominal value of EEK 100,000. The certificates contribute to interbank money market development and the creation of mutual trust.

Information about the banknotes of the Republic of Estonia is sent to foreign banks.

1 January 1993
A new reporting procedure of Estonian banks is established, replacing the reporting forms of the State Bank of the Soviet Union which have remained effective to this point.

11 May 1993
Stricter requirements for the minimum amount of the share capital of banks are established.

18 June 1993
The Eesti Pank Act enters into force.

1 July 1993
Instead of the current economic legislation of the State Bank of the Soviet Union, stricter rules are enforced by a regulation of Eesti Pank.

October 1993
The first ATM starts operating in Tallinn.

March 1994
The Riigikogu revokes the Foreign Currency Act. Thereby, the last formal restrictions on foreign exchange transactions are removed and resident individuals are also allowed to open foreign currency accounts. In summer 1994, Estonia joins the obligation not to impose foreign currency restrictions. Estonia is one of the first transition countries in Central and Eastern Europe to remove barriers to the free movement of capital.

4 April 1994
Eesti Pank commences the sales of swap and futures contracts of the Eesti kroon and German mark with a term of up to seven years. This means that banks can buy a certain quantity of kroons or marks with a fixed rate for seven years, which are bought back by Eesti Pank at the same exchange rate. The aim is to decrease speculation related to the possible devaluation of the kroon. Entry into transactions is terminated in March 1995 when the necessity for such funds disappears.

September 1994
By a resolution of the Supervisory Board of Eesti Pank, the terms of achieving minimum amounts of funds of banks are established: 1 January 1996 – 50 million kroons; 1 January 1997 – 60 million kroons; 1 January 1998 – 75 million kroons. This is done for the purpose of strengthening the capital base of banks and enabling them to fulfil their role as financial intermediaries more effectively.

December 1994
The Riigikogu adopts the Credit Institutions Act, which enters into force in January 1995.

1995–1999: modernisation and regulation of the banking environment

Vahur Kraft

27. April 1995
Vahur Kraft is appointed as the Governor of Eesti Pank.

By a resolution of the Supervisory Board of Eesti Pank, the minting and issuing of five-cent coins is terminated because their production is more costly than their denomination and they have forfeited their importance as a means of payment. Five-cent coins remain in circulation for an unspecified term.

From 1996 Eesti Pank starts accounting for Estonia’s international investment position and external debt. The international investment position shows how many external assets and liabilities a state has on a certain date expressed in the market prices of that date, while the external debt indicates the size of the debt of a state in relation to other countries. The first indicators are published as of 31 March 1996.

9 January 1996
The rules of quoting TALIBOR (interbank deposit interest) and TALIBID (interbank loan interest) are approved.

May 1996
The due diligence and procedure for application of provisions of money laundering prevention of the Credit Institutions Act are established. The addition of a chapter addressing money laundering prevention to the version of the Credit Institutions Act effective since the beginning of 1995 is the first step in the establishment of the framework for money laundering prevention in Estonia.

1 July 1996
The demand to continuously meet the reserve requirement of banks – a certain share of all of the deposits (liabilities) of a bank that banks must deposit in the central bank – is replaced with a requirement to keep the current account balance in Eesti Pank at the level of an average of a month. Banks can use a considerably greater money buffer for daily settlements, which helps to lower the liquidity risk and stabilise the interbank money market interest rate.

Eesti Pank eliminates the bid and ask rate differences in transactions involving the Estonian kroon and German mark. This reduces transaction costs and increases the currency turnover of the banking system. In December 1997, the monthly turnover of foreign currency transactions is 14 times greater than in June 1996.

Several risks incurred with rapid economic development are clearly seen in the macroeconomic environment. Money supply increases relatively quickly and banks become more active in granting loans. This causes a need to adjust the framework of monetary policy. Eesti Pank adopts many measures with the aim of increasing the liquidity of banks (the amount of available funds) or strengthening the management thereof.

11 September 1997
The rating agencies Moody's and IBCA (current Fitch) give Estonia the first credit rating commissioned by Eesti Pank. A rating is a sign of credibility for a small country, because it enables financial market participants to compare countries. The existence of a sovereign rating makes it possible to issue ratings to companies operating in the state. A high rating favours a positive attitude among investors.

November 1997
In order to stabilise the banks' intra-month kroon liquidity and to minimise potential settlement risks, Eesti Pank raises the daily minimum reserve requirement from 2% to 4% of the reserve requirement base or liabilities (mostly deposits). At the same time, a penalty interest rate for non-compliance with the reserve requirement increases to 20%. As a counterbalance, interest paid on the account balance above the minimum required reserve level is increased.

Several changes in the prudential rules or requirements of banks serving as a basis for assessing the strength of banks enter into force at the beginning of the year. The consideration of market risk in calculating the capital adequacy indicator (showing how much the bank has contributed its funds in comparison with the amount of deposits or liabilities) and establishment of prudential rules for subsidiaries of banks (in accounting for the bank group) is more significant.

Estonia signs up to the special data dissemination standard (SDDS) of the International Monetary Fund (IMF), which completely alters the culture of statistics in Estonia, incl. Eesti Pank.

Eesti Pank terminates the issuing of the one-kroon coins emitted in 1992, 1993 and 1995, because they are too similar to the German one-mark coins in terms of their composition, dimensions and weight. One-kroon coins made from a different alloy and having different dimensions are put into circulation and the issuing of one-kroon banknotes to banks is terminated.

April 1998
The Riigikogu adopts the Deposit Guarantee Fund Act, which lays the foundations for the deposit insurance system of Estonia. In accordance with this system, the state guarantees deposits held by people in banks to a certain extent.
The Act enters into force in October 1998.

Mart Sõrg

18 June 1998
Mart Sõrg
is appointed as the Chairman of the Supervisory Board of Eesti Pank.

1 September 1998
Financial guarantees granted to subsidiary financing institutions (e.g. leasing companies of the bank group) and non-resident banks (branches or subsidiaries of banks operating in foreign countries) are fully included in the reserve requirement, i.e. in the accounting basis of liabilities deposited in the central bank. Thus, if a leasing company or a branch of a foreign bank has raised loans with the guarantee of a parent bank, these guarantees are included in the accounting for the reserve requirement.

31 December 1998
Eesti Pank establishes the exchange rate of the kroon against the euro at
EUR 1 = EEK 15.6466. This equals the official exchange rate of the Estonian kroon against the German mark (DEM 1 = EEK 8).

1999–2004: Integration with the banking framework of the European Union and preparations to join the European Union

From 1999-2004 Estonia moved from being a candidate country to an acceding country of the European Union and to finally becoming a Member State. One of the institutions responsible for accession negotiations was Eesti Pank. The central bank played a significant role in preparing subjects dealing with the free movement of services and capital, the Economic and Monetary Union, institutions and statistics.

1 January 1999
The currencies of 11 Member States of the European Union, incl. the underlying currency of the Estonian kroon – the German mark – are irrevocably tied to one another on 1 January 1999 and the euro, the single currency of Europe, is issued. At the beginning of 1999 a new procedure for purchase and sales transactions of foreign currencies between Eesti Pank and banks operating in Estonia comes into effect. Eesti Pank starts entering into purchase and sales transactions for the euro and the Estonian kroon with banks operating in Estonia without a price spread.

June 2000
Vahur Kraft is appointed as the Governor of Eesti Pank for a second term.

January 2002
An independent financial supervision institution – the Financial Supervision Authority – commences work at Eesti Pank. The primary function of the authority is to ensure that financial institutions are able to perform obligations to clients (pay deposits, insurance losses, funded pensions etc.). These functions have previously been performed by the Banking Supervision of Eesti Pank and Insurance Supervisory Authority and Securities Inspectorate under the area of administration of the Ministry of Finance.

Eesti Pank launches an interbank settlement system meeting international requirements. The new system consists of two sub-systems: a settlement system for retail payments and a real-time settlement system for urgent payments.

July 2002
To make the safety net of the financial sector more efficient and increase the trust of small savers and investors in the financial sector, in addition to guaranteeing deposits, the Guarantee Fund also starts to provide protection to investors and people investing in mandatory funded pensions.

December 2002
The European Union submits a formal invitation to join the EU to ten candidate countries, including Estonia. The Treaty of Accession is signed in Athens on 16 April 2003 and enters into force on 1 May 2004.

1 March 2003
Technical changes harmonising accounting for the reserve requirement of Estonia and the Eurosystem framework are implemented by a resolution of the Supervisory Board of Eesti Pank of 31 October 2002. As in the Eurosystem, Estonia also introduces two substantial reserve requirement ratios: a general ratio for liabilities with up to two years of maturity and a special ratio for liabilities with longer maturities and repurchase agreements.

A repurchase agreement is essentially a loan granted against collateral securities.

Example. Your share portfolio consists of 2000 shares of Harju Elekter. You feel that the shares of Baltika are undervalued and you expect a rise in the market prices in the near future. You have no available funds to purchase shares in Baltika, but you do not want to give up your shareholding in Harju Elekter either. A solution is a repurchase agreement under which you sell your shares of Harju Elekter to a bank according to an agreement that you will repurchase them at a certain time at a specified price, and you get the funds required for the purchase of the shares of Baltika from the bank.

September 2003
A referendum is held in Estonia. 66.9% of voters support accession to the European Union. This also means support for Estonia’s accession to the euro area and for the introduction of the euro.

The European Union single passport principle is introduced in Estonian banking. Accordingly, instead of the obligation to apply for a banking licence, a notification obligation is established for a branch of a credit institution operating in another Member State.

Estonia’s accession to the European Union entails changes in banks’ prudential rules harmonising requirements with the rules of the European Union.

January 2004
In addition to a domestic account number, Estonia introduces the IBAN – the International Bank Account Number standard. This helps to accelerate international payments.

1 May 2004
Estonia joins the European Union. Eesti Pank becomes a member of the European System of Central Banks and, after making a capital contribution to the European Central Bank, one of the owners of the European Central Bank.

2004–2011: preparations for transition to the euro

Estonia commences operations in the Exchange Rate Mechanism ERM II, which is one of the prerequisites for joining the euro area.

The objectives of ERM II (the Exchange Rate Mechanism of the European Monetary System) are to ensure the success of the European Monetary System and to reduce the fluctuation of participating currencies with respect to the euro. Each joining country must be a member of ERM II for at least two years.

Andres Lipstok

7 June 2005 Andres Lipstok assumes office as the Governor of Eesti Pank.

This year the most significant amendment to banking regulations is the increase in the risk weight of residential loans from 50% to 100%. This means that upon granting residential loans a bank must make more use of its own capital and less use of deposits.

October 2005
Eesti Pank replaces the current interbank settlement system with the Interbank Settlement System of Ordinary Payments (ESTA). The updated system has faster payment settlements (ten times a day), the system operates for a longer period (from 8:30 to 18:00 each business day) and the entire system is more efficient for users, i.e. banks.

March 2006
Amendments to banking regulations enter into force with the primary aim of lowering risks related to residential loans. However, as these amendments do not adequately lower the risks, from 1 September 2006 Eesti Pank decides to increase the reserve requirement ratio of banks from 13% to 15%. By this resolution, the central bank sends a clear signal that there is a great danger of the economy overheating.

18 December 2006
Eesti Pank, Sveriges Riksbank, Latvijas Banka and Lietuvos Bankas sign a cooperation agreement on the management of financial crises, under which the contracting parties improve their readiness to cooperate upon a financial crisis affecting cross-border bank groups. The document states that primary responsibility for resolving a crisis situation lies with the owners and management of a bank or subsidiary bank experiencing difficulties. Central banks only intervene if special solutions do not work or are insufficient.

20 November 2006
Eesti Pank, the Estonian Central Depository for Securities and three commercial banks join TARGET – the central bank settlement system of the Eurosystem. This enables the banks and other financial institutions using the system via Eesti Pank to make faster euro payments than earlier.

19 May 2008
Eesti Pank joins the updated TARGET system or TARGET2. As seven Estonian commercial banks (incl. large-scale banks) also join TARGET2, it can be said that most Estonian bank clients have an alternative channel for urgent (same-day) euro payments through these banks.

Jaan Männik

13 June 2008
Jaan Sven Männik
is appointed as the Chairman of the Supervisory Board of Eesti Pank.

September 2009
Inflation decreases in Estonia and, thereby, Estonia has an opportunity to meet the Maastricht criteria that form a prerequisite for joining the euro area. Extensive preparations for the introduction of the euro begin.

13 July 2010
The Economic and Financial Affairs Council (ECOFIN) of the 27 Member States of the European Union confirms a decision allowing Estonia to join the euro area. 1 January 2011 is determined as the date of joining the euro area. The exchange rate is fixed at the current level: EUR 1 = EEK 15.6466. Suomen Rahapaja (the Mint of Finland) starts minting 194 million Estonian euro coins (a total of around 600 tonnes) in July.

19 September 2010
Jean-Claude Trichet
, the President of the European Central Bank, hands the symbolic Euro Star over to Andres Lipstok, the Governor of Eesti Pank, in Independence Hall. Eesti Pank becomes one of the central banks of the euro area, participating in debates and decisions related to the euro area. An extensive information campaign on the introduction of the euro commences.

Jean-Claude Trichet handing the Euro Star to Andres Lipstok

Since 2011: The euro is in circulation in Estonia and Eesti Pank is responsible for the stability of the single currency

1 January 2011
Estonia introduces the euro. The settlement systems of Eesti Pank are based on the euro. The euro and kroon remain in parallel circulation until 15 January. Banks exchange kroons for euros without a service fee and at the official exchange rate of Eesti Pank. Larger banks do the same until 31 December 2013. Eesti Pank exchanges kroons for euros without a service fee and for an unlimited period of time.

On 1 January 2011 Estonia becomes a fully-fledged member of the European Economic and Monetary Union (EMU) and Eesti Pank becomes a member of the Eurosystem, i.e. one of the central banks of the euro area. The Governor of Eesti Pank will be a member of the Governing Council of the European Central Bank and, thus, one of the decision-makers in the field of monetary policy. Just like the Governors of the central bank of Germany, Italy or Finland, the Governor of Eesti Pank also has a vote on the Governing Council. Experts from Eesti Pank take up positions on the committees and working parties of the European Central Bank where matters concerning the euro area are discussed.

Becoming a member of the euro area causes major changes for Eesti Pank in the field of monetary policy, economic analysis of the euro area, reserve management, currency operations, statistics, cash and payment systems. However, the changes do not particularly concern any functions not directly related to single monetary policy (e.g. monitoring and analysing the Estonian economy, compiling economic forecasts or producing statistics).

28 May 2012
Eesti Pank announces that it wants to update the Interbank Settlement System of Ordinary Payments (ESTA). The aim is to bring it into line with the conditions of the single euro payments area (SEPA). In the middle of the same year it appears that commercial banks will not use the system offered by Eesti Pank, as they prefer more favourable solutions. Eesti Pank decides to close the interbank settlement system managed by it in February 2014.

7 June 2012
Ardo Hansson
assumes office as the Governor of Eesti Pank.

Ardo Hansson

2 May 2013
Second-series five-euro notes are introduced in the euro area. Eesti Pank puts the new banknotes into circulation the same day in Estonia.

13 June 2013
Mart Laar
takes office as the Chairman of the Supervisory Board of Eesti Pank.