Bank of Lithuania

Vilnius 2009 Each day, a lot of people directly and indirectly come in contact with the Bank of Lithuania, the central bank of the Republic of Lithuania, by holding in their hands the litas, the national currency issued by the Bank, and using it to pay for goods and services. The majority of non-cash settlements (both in litas and in euro) are made via the central bank’s payment systems. A significant number of people use services of commercial banks and credit unions, whereas the Bank of Lithuania performs supervision of these credit institutions by issuing licences for their operation, monitoring their financial situation and operational risks, taking measures for these risks to be at an acceptable level and preparing and publishing the banking sector reviews. The Bank of Lithuania formulates and implements monetary policy, determines the litas exchange rate regulation system and sets the official exchange rate of the litas. Earlier the litas was pegged to the US dollar at the fixed exchange rate, whereas now it is pegged to the euro. The Bank of Lithuania has already maintained the stable exchange rate of the litas against the anchor currency for more than 15 years. Foreign reserves managed and used by the Bank of Lithuania represent a significant financial tool for ensuring litas stability. By investing these reserves, the Bank of Lithuania earns the largest share of its income. The central bank provides necessary statistical information to users. Our institution monitors and analyses the country’s economy, forecasts its potential developments and performs the financial system stability 2 assessment. This is important for enterprises in the planning and expansion 3 of their activities, and for the population in taking borrowing and investment decisions. Bank of Lithuania

The Bank’s objectives and tasks, as well as all of its functions are set in the Republic of Lithuania Law on the Bank of Lithuania. The role of the Bank of Lithuania is very important for the country’s economy and financial system, therefore the Bank of Lithuania is included among the most important state institutions in the Constitution of the Republic of Lithuania. On Lithuania’s accession to the European Union, the Bank of Lithuania became a member of the European System of Central Banks. This led to closer cooperation of our institution not only with the European Central Bank, but also with other central banks of the EU Member States. The Bank of Lithuania is capable of successful accomplishment of the new tasks owing to its competent staff. I highly appreciate their daily effective work and competence and I am confident that they are capable of properly responding to the challenges faced by Lithuania’s economy. I hope that this publication will offer an opportunity for the public to learn more about the central bank of the Republic of Lithuania and its operations. This publication also presents the key moments in the history of the national central banking.

2 Reinoldijus Šarkinas 3 Chairman of the Board of the Bank of Lithuania 4 5 Bank of Lithuania

Litas Banknotes and Coins 6 Collector (Commemorative) Coins 8 Litas Exchange Rate Policy and Monetary Policy Measures 10 Official Reserve Assets 12 Supervision of Commercial Banks, Credit Unions and Payment Institutions 14 Economic and Financial System Analysis and Projections 16 Administration of Accounts for the State Treasury and State Institutions 17 Statistics 18 Payment and Securities Settlement Systems 19 International Cooperation 20 European System of Central Banks 21 Euro Adoption in the Future 22 Management, Structure and Personnel of the Bank of Lithuania 24 Transparency, Promotion of Science, Contribution to Culture 26 Periodicals 28 Monetary Studies 29 Vladas Jurgutis Award 30 Scholarships to Students 31 Money Museum 31 History 32 4 5 Recovery of Gold 33 Cultural Heritage 34 Litas Banknotes and Coins The currency unit of the Republic of Lithuania, the litas, is made up of 100 centas as provided for in the Republic of Lithuania Law on Currency. Cash is available in the form of litas banknotes and coins and centas coins. The Bank issues the litas into circulation and withdraws them from circulation, establishes currency denominations, design, distinguishing, security and acceptability features, organises printing of litas banknotes, minting of litas and centas coins, their transportation and storage, establishes the procedures for the withdrawal of worn and damaged Lithuanian currency units from circulation, their replacement and destruction, forms banknote and coin reserves and performs expert examination of litas banknotes and coins and centas coins. In the beginning of 2009, 83 million banknotes of various denominations with the total value of LTL 9,433 million (80 tons in total) were in circulation. 200 litas banknotes accounted for the largest share (approx. 50%) of the total value of banknotes in circulation. There were nearly 900 million coins of various denominations with the total value of LTL 196 million 6 (1,700 tons in total) in circulation. 7 Bank of Lithuania

The banknote and coin reserves are stored in the vaults of the Bank of Lithuania in Vilnius, Kaunas and Klaipėda. This is where commercial banks from all over Lithuania obtain litas banknotes and coins and centas coins. Litas banknotes in circulation were printed by printing houses well known all over Europe. The most advanced security features were used to ensure security of litas banknotes (multicolour printing, holograms, optically variable inks, glossy stripes, etc.). Experts of the Bank of Lithuania organise seminars and provide the public with information on security features of banknotes and coins and the ways of their identification. A comprehensive description of the litas banknote security features is available on the Bank’s website. Litas and centas circulation coins are struck by Vilnius-located UAB Lietu- vos Monetų Kalykla (Lithuanian Mint) owned and operated by the Bank of Lithuania. Collector (commemorative) coins issued by the Bank of Lithua- nia are minted there too. To ensure that only good quality currency units are in circulation, the Bank of Lithuania uses modern automated banknote and coin processing equipment. The money returning from circulation to the Bank’s central office in Vilnius and its branches in Kaunas and Klaipėda is recounted, sorted and its degree of wear is established. Banknotes and coins unfit for circulation are then destroyed, while good quality banknotes and coins are reissued into circulation.

6 7 Collector (Commemorative) Coins Collector (commemorative) coins are issued to honour landmark events in our state and world history, prominent people and architectural monuments. The Bank of Lithuania has already issued over 60 collector coins dedicated to special topics. The first commemorative coin issued by the Bank of Lithuania was a 10 litas coin dedicated to the 60th anniversary of the flight across the Atlantic Ocean by Steponas Darius and Stasys Girėnas, which was minted of cop- per and nickel alloy in 1993. Later, precious metals, such as silver and gold, were used for striking commemorative coins. The following series of coins were issued: “The Rulers of Lithuania”, “Lithua- nian Cities”, “Historical and Architectural Monuments of Lithuania”, “The Millennium of the Mention of the Name of Lithuania”, as well as coins dedi-

8 9 Bank of Lithuania

cated to the Olympic games and other events. The Bank of Lithuania has been participating in international coin programmes. Gold and silver coins were issued as items of the United Nations Children’s Fund (UNICEF) coin program “Children of the World”, “The Smallest Gold Coins of the World. History of Gold”, “Endangered Wildlife” and “Europe. European Cultural Heritage”. In addition to silver and gold coins dedicated to certain events or phe- nomena, one litas collector circulation coins of the same design are also issued. Five such coins have already been issued; they are dedicated to the 75th anniversary of the Bank of Lithuania and litas, the 10th anniversary of the Baltic Way, the 425th anniversary of Vilnius University, the Palace of the Rulers of the Great Duchy of Lithuania and Vilnius as the European Capital of Culture 2009. The Bank also issues numismatic coinsets of litas and centas circulation coins that are of higher minting quality than regular circulation coins. The website of the Bank of Lithuania presents comprehensive information on collector coins already issued, provides the programme of issue of collector coins, informs about coin design competitions and describes the procedures for ordering and obtaining collector coins. The newly issued collector coins and numismatic coinsets of circulation coins are sold at the cash offices of the Bank of Lithuania in Vilnius, Kaunas and Klaipėda.

8 9 Litas Exchange Rate Policy and Monetary Policy Measures

The fixed national currency exchange rate regime is functioning in Lithua- nia. It was established by the Law on the Credibility of the Litas adopted in 1994. Pursuant to this law, all litas issued in circulation by the Bank of Lithuania must be 100 per cent backed by gold and convertible currency reserves. Strict compliance with this requirement guarantees a possibility for litas holders to exchange them at any time into anchor currency and vice versa at the fixed official exchange rate. People and companies may do it in any domestic commercial bank, and the latter may do it at the Bank of Lithuania. Simply speaking, the amount of litas issued into circulation by the central bank of the Republic of Lithuania equals the amount of the anchor currency euro sold to the central bank by commercial banks. The litas amount in circulation depends on its demand in the market. The official exchange rate of the litas is set against the anchor currency. The anchor currency and the official exchange rate of the litas against the anchor currency are set by the Bank of Lithuania after co-ordinating the 10 decision with the Government of the Republic of Lithuania. On 2 February 2002, the litas was pegged to the euro at the fixed exchange rate of LTL 3.4528 for EUR 1. For nearly eight years before that (from 1 April 1994 to 1 February 2002), the litas was pegged to the US dollar. Bank of Lithuania

When joining the European Union, Lithuania undertook a com- (large difference in labour productivity in exporting sectors mitment to adopt the single currency euro in the future. One of and sectors that are not related to foreign trade, which leads the required conditions for the euro adoption is the minimum to price convergence); and cyclical upturns and downturns of period of two years of participation in the second EU Exchange the economy, which are sometimes deepened by inadequate Rate Mechanism (ERM II), which was joined by our country on economic and fiscal policy of the state. Comparatively flexible 28 June 2004. When joining the ERM II, Lithuania undertook a wages and relatively strict fiscal policy are important features unilateral commitment to retain the fixed exchange rate regime of the small and open economy of Lithuania that enable a and a stable exchange rate of the litas against the anchor cur- successful application of the fixed litas exchange rate strategy. rency euro, while continuing to pursue its own monetary policy. The monetary policy instruments (litas and anchor currency The litas exchange rate policy and the implementation by the exchange transactions, required reserves of commercial banks, Bank of Lithuania of its primary objective, i.e. maintaining price overnight lending facility for banks) are applied by the Bank stability, are frequent topics for discussion in the media and of Lithuania to maintain the fixed exchange rate of the litas among politicians. against the anchor currency euro during the participation of The Bank of Lithuania implements its primary objective by Lithuania in ERM II and help ensuring adequate liquidity in the maintaining the fixed exchange rate of the litas. The primary banking system. objective is pursued indirectly: the fixed exchange rate of the To ensure the stable exchange rate of the national currency litas ensures more stable export and import prices, anchors low against the euro, as mentioned above, the Bank of Lithuania inflation expectations, supports confidence in the Lithuanian exchanges litas into euro for commercial banks registered in economic policy. Thus, the fixed exchange rate of the national the country without restrictions. Banks operating in Lithuania currency allows ensuring relative price stability in the long are requested to keep a set percentage of their deposit hold- term. Inflation may deviate from the level perceived as rela- ings as required reserves with the central bank to ensure their tive price stability in the short and medium term due to the capability to smoothly perform payments and settlements of following reasons: large shocks in commodity markets (espe- enterprises and individuals. cially food and energy, which account for a comparatively large Domestic commercial banks may obtain an overnight credit part of the consumer price index and the cost structure of the from the Bank of Lithuania for secure collateral. economy in Lithuania); administrative decisions (changes of If necessary, commercial banks may also obtain liquidity loans consumption taxes and regulated prices); structural processes from the Bank of Lithuania for collateral. Official Reserve Assets Official reserve assets (foreign reserves) are reliable liquid foreign assets managed and used by the Bank of Lithuania. The amount of reserves has been increasing gradually. At the time the Bank of Lithuania started to manage foreign reserves, they made up USD 300 thousand. In the beginning of 2009, official reserve assets amounted to EUR 4.6 billion. The largest portion of foreign reserves (approx. 97 per cent) is held in euro, whereas the remaining portion is made up of gold (approx. 5.8 tons). Before World War II, gold was held in France, Great Britain and the Bank for International Settlements and returned to Lithuania after the restoration of its independence. The aim of the foreign reserve management is to ensure a possibility of intervention in the domestic foreign exchange market to maintain the fixed litas exchange rate against the euro. Foreign reserves are managed following the principles of safety and liquidity. These principles are 12 13 Bank of Lithuania

implemented by investing only in the highest quality financial instruments in developed economies. The Bank uses various long-term and medium-term investment strategies that comply with the global good market practice and optimises the ratio of return on investment to the risk level acceptable to the Bank of Lithuania. All the gold owned by Lithuania is kept at the Bank of Eng- land in London. When market conditions are favourable, the gold reserves are invested into time deposits or gold swaps.

12 13 Supervision of Commercial Banks, Credit Unions and Payment Institutions

The Bank of Lithuania, within the range of its competence, seeks to ensure soundness, transparency and competitiveness of the domestic system of credit institutions. In the beginning of 2009, there were 9 commercial banks holding licences from the Bank of Lithuania and 13 foreign bank branches (8 subsidiaries and 5 representative offices) operating in our country. Two Lithuanian banks had 7 representative offices in other countries. Also, the Central Credit Union of Lithuania and 67 credit unions were operating in Lithuania. An efficient credit institutions supervision system that complies with international practices has been created in our country. It is the opinion of the International Monetary Fund, a highly competent world financial institution. The Bank of Lithuania issues licences to credit institutions for the provision of licensed financial services and supervises their activities. As a supervisory authority, the Bank of Lithuania monitors the compliance of credit institutions with the requirements set by the laws and legal acts of 14 the Bank of Lithuania, the International Financial Reporting Standards and recommendations of the Basel Committee on Banking Supervision regard- ing safe and reliable banking practices. The Bank of Lithuania constantly monitors the financial situation of credit Bank of Lithuania

institutions, assesses their activities, controls their compliance of internal capital required for covering the overall operational with prudential requirements and analyses the performance risk. Banks themselves must define which of the risks are and trends of the banking system. The Bank of Lithuania relevant to them (e.g. credit, market, operational, concentra- systematically organises inspections of credit institutions (usu- tion, strategic, reputation, etc.) and how they manage them, ally no less than once a year for commercial banks and every and determine the internal capital requirement. The Bank of two years for credit unions). Inspections of credit institutions Lithuania, in its own turn, performs supervisory review and mainly focus on the highest risk areas of their activities by assessment of commercial banks. This process is used to find checking the management of credit, liquidity, market and out whether banks ensure proper risk management and have operational risks and its efficiency. In case any drawbacks of sufficient capital to cover these risks. the operation of credit institutions or non-compliance cases The Bank of Lithuania has set the requirements for the public are discovered, the institution is asked to remove them or, disclosure of information by commercial banks. Such informa- if necessary, enforcement measures established by legal tion is useful for commercial bank customers, investors and acts are applied. The supervision of branches established by other parties concerned in the assessment of bank operations. banks of EU Member States in Lithuania is performed by the In conducting the supervision of credit institutions, the Bank supervisory authority of the state under whose jurisdiction of Lithuania co-operates with the Securities Commission of the foreign bank falls. The Bank of Lithuania is responsible for the Republic of Lithuania and the Insurance Supervisory Com- supervising compliance of branches with the liquidity ratio, mission of the Republic of Lithuania. Taking into account the monitoring their deposit concentration, analysing financial fact that foreign capital banks dominate the domestic banking indicators, changes in assets and liabilities, income and costs, sector, co-operation with respective supervisory authorities of internal control measures applied and performs inspections other countries is of huge relevance. within its competence. Taking into consideration the EU directives, the activities of Starting with 2008, new requirements for the calculation new economic entities that provide payment services, pay- of capital adequacy, (solvency) prepared according to the ment institutions, will be regulated in Lithuania, including EU directives are applied to commercial banks in Lithuania. their licensing, accounting, supervision, etc. At the end of According to these requirements, each bank not only must 2009, the Bank of Lithuania will start the supervision of the calculate the capital requirement according to the rules set said institutions. by the Bank of Lithuania, but also must assess the adequacy Bank of Lithuania

Economic and Financial System Analysis and Projections The Bank of Lithuania performs stress testing of the financial system. Its main goal is to identify the largest potential threats to stability of the domestic financial system and to assess its capability of withstanding effects of unfavourable internal and external shocks. Financial Stability Review is prepared and published once a year. It presents an analytical assessment of the domestic financial system with the focus on the situation in the domestic banking system and its debtors – households and non-financial institutions. The Bank of Lithuania also prepares the economic development forecasts 16 and presents them to the public. Such forecasts are usually prepared for two-year periods and cover the key economic indicators, such as gross domestic product, inflation, current account deficit, unemployment rate, Bank of Lithuania

Administration of Accounts for the State Treasury and State Institutions etc. Economic development forecasts present the most likely In performing its functions of a State Treasury agent, as set forth scenario of economic development based on certain assump- by the law, the Bank of Lithuania administers litas and foreign tions. currency accounts of the State Treasury. The country’s monetary It is also very important to foresee potential sources of risk to resources held in these accounts are managed by state institu- forecasts. Since any forecast is based on probability, it is im- tions of the Republic of Lithuania. The Ministry of Finance man- portant for enterprises and individuals to understand not only ages the largest share of these resources. The Bank of Lithuania why certain economic development is forecasted, but also the also administers the litas and foreign currency accounts of other factors that might determine different economic trends than domestic and European Union institutions, foreign banks and those forecasted. This forms expectations of market partici- international financial institutions. pants and facilitates the assessment of the overall economic In the beginning of 2009, the Bank of Lithuania has been admin- situation.. istering 255 accounts of the State Treasury and state institutions. Bank of Lithuania

Statistics The financial statistics of Lithuania, which is comparable with the statistics of other European Union Member States, is widely used by local and foreign finance analysts, scientists, politicians, students, journalists and the general public. Financial statistics that accurately reflects the changing situation is required for performing economic and financial analysis and making forecasts. Therefore, in recent years the Bank of Lithuania developed new statistics, enhanced existing statistics, and improved its quality and presentation to the public. The Bank of Lithuania compiles monetary and financial statistics, external statistics and the country’s quarterly financial accounts. Monetary and financial statistics is a set of indicators of money and credit, balance and interest rates, money and foreign exchange markets and payment systems. External statistics comprises official reserve assets, balance of payments, international investment position and external debt data. Quarterly financial accounts show the information on financial assets and liabilities of indi- vidual sectors of the economy. Statistical information is published on the Bank’s website and in periodicals, whereas users of statistical information are provided with methodical assistance. The Bank of Lithuania uses the data of other institutions on pension funds, securities, government finance and economic transactions. The data from the Foreign Loan Register are used in the compilation of statistics; preparations are under way to start using to the Loan Risk Database.

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Payment and Securities Settlement Systems

The Bank of Lithuania provides payment and settlement serv- of Lithuania, several largest domestic commercial banks and AB ices, manages and conducts the oversight of the payment and Central Securities Depository of Lithuania are the participants of securities settlement systems operating in Lithuania. this system. The Bank of Lithuania manages and operates two payment The LITAS-PHA system developed and managed by the Bank of systems for settlements in litas: the real-time gross settlement Lithuania provides the infrastructure for financial institutions to system LITAS-RLS and the retail payment system LITAS-MMS. perform settlements in euro via the Bank of Lithuania. Lithuanian Participants of these systems are the Bank of Lithuania, credit institutions may obtain intraday credits in euro via settle- domestic commercial banks, foreign bank branches and the ment accounts opened in this system. The Bank of Lithuania, the Central Credit Union of Lithuania. These systems are also used majority of domestic commercial banks, foreign bank branches, by financial brokerage companies and AB Central Securities the Central Credit Union and one financial brokerage are the us- Depository of Lithuania. ers of this system. Two payment systems for settlements in euro are also used in The Bank of Lithuania conducts the oversight of 4 payment Lithuania: TARGET2-LIETUVOS BANKAS and LITAS-PHA. They systems (LITAS-RLS, LITAS-MMS, LITAS-PHA and KUBAS*) and the provide the infrastructure for domestic financial institutions to securities settlement system**. The Bank of Lithuania participates expand their services of domestic and settlements in euro. in the oversight of TARGET2 together with the Eurosystem.

The Bank of Lithuania administers and provides support to *The Central Credit Union of Lithuania is the owner and operator of the KUBAS system. participants of the payment system TARGET2-LIETUVOS BAN- **AB Central Securities Depository of Lithuania is the owner and operator of the securities settlement system. KAS, which is a component of TARGET2. In addition to the Bank

18 19 International Cooperation

The Bank of Lithuania maintains relations with international financial institutions, such as the International Monetary Fund, the Bank for International Settlements, the World Bank Group, etc., and participates in their activities. The cooperation of the Bank of Lithuania with the International Monetary Fund is based on annual consultations. Also, intensive cooperation takes place with the Nordic and Baltic countries in formulating the common position on the most important issues considered by the Executive Board of the International Monetary Fund. The Bank of Lithuania regularly cooperates with the central banks of foreign countries, especially the neighbouring countries. It has been fifteen years since the start of the annual seminars for the central banks of the Baltic States, where they exchange their experience on various central banking issues. The Bank of Lithuania provides technical assistance through 20 consultations and seminars to representatives of the central banks of the 21 countries included in the list of official development aid recipients com- piled by the Organisation of Economic Cooperation and Development. Bank of Lithuania

European System of Central Banks The European System of Central Banks is made up of the tions Committee, Monetary Policy Committee, Payment and European Central Bank and the central banks of all EU Member Settlement Systems Committee and Statistics Committee), States, otherwise also called national central banks. Human Resources Conference, working groups and task forces. As a member of the European System of Central Banks, the Bank The Bank of Lithuania is a holder of the subscribed capital of of Lithuania participates in the preparation and adoption of de- the ECB. The right to subscribe and hold a share of this capital is cisions of the European Central Bank. The Chairman of the Board limited to the central banks of the EU Member States. The share of the Bank of Lithuania is a member of the General Council of of the Bank of Lithuania in the subscribed capital of the ECB is the ECB, one of the ECB’s three decision-making bodies. Usually 0.4256 per cent (EUR 24,517,336.63). The shares of NCBs in the the Council meets four times a year. capital of the ECB are calculated according to the respective EU The staff members of the Bank of Lithuania discuss relevant Member State’s population and gross domestic product. issues related to various areas of activity in the meetings of the ESCB committees (Accounting and Monetary Income Com- mittee, Banking Supervision Committee, Banknote Committee, 20 Eurosystem/ESCB Communications Committee, Information 21 Technology Committee, Internal Auditors Committee, Interna- tional Relations Committee, Legal Committee, Market Opera- Bank of Lithuania

Euro Adoption in the Future Lithuania’s commitment to adopt and use the EU single currency euro will be fulfilled, when our state meets the set economic and legal convergence criteria. Experts state that in the long term the adoption of the euro will create more favourable conditions for the development of the domestic economy and accelerate the catching-up with higher living standards. It will also be more convenient for travellers, as there will be no need to exchange cash. The single currency will give Lithuania additional economic and financial security, because the euro has already become an attractive global currency used for international trade, loans, and reserves. Setting the date for the adoption of the euro by any EU Member State is within the competence of the Council of Economics and Finance Ministers of the European Union (Ecofin). The Bank of Lithuania supports the efforts of the Government of the Republic of Lithuania to reach compliance with the convergence criteria and introduce the euro as soon as possible. The preparations for the euro adoption have been finalised already in some important areas, or at least a lot has been done. This could be said 22 about the minting of euro and euro cent coins, the cash changeover and 23 joining the Eurosystem’s payment system. Each EU Member State that has adopted the euro enjoys the right of issuing euro coins into circulation in the euro area with one side that is com- Bank of Lithuania

mon for all countries (the common side) and the other side that is different (the national side). When Lithuania adopts the euro, it will issue euro circulation coins with the symbol of our national emblem Vytis. Public surveys revealed that it was the wish of the majority of the country’s people. In February 2005, the Board of the Bank of Lithuania approved three plaster models for the national side of the euro coins designed by the sculptor Antanas Žukauskas, to be used to strike coins with the denominations of 1 and 2 euros, 10, 20 and 50 cents and 1, 2 and 5 cents. Twelve stars (the symbol of the EU) are positioned respectively against the background of vertical and horizontal lines. The Lithuanian Mint is fully ready for striking euro coins. In accordance with the procedure established by the European Union, the quality management system for the production of euro coins has been already tested and the tools for minting the new common side of all euro coins are in place. In cooperation with the European Commission and the Euro- pean Central Bank, the Bank prepared and issued publications in Lithuanian, Russian, and Polish about the single currency of the European Union, the euro. Seminars dedicated to this topic and lectures to pupils, students, teachers, business people, cash officers at commercial banks, public servants and other 22 groups are organised all around the country. 23 Bank of Lithuania Management, Structure and Personnel of the Bank of Lithuania

The governing body of the Bank of Lithuania is its Board. It consists of a Chairman of the Board, two Deputy Chairmen of the Board and two Members of the Board. The Chairman of the Board is appointed for a term of five years by the Seimas of the Republic of Lithuania upon the nomination by the President of the Republic. The number of terms is not limited. The other members of the Board are appointed by the President of the Republic upon the nomination of the Chairman of the Board of the Bank of Lithuania for no more than two nine-year terms. In the beginning of 2009, the Bank had eleven departments and six independent divisions, also branches in Kaunas and Klaipėda. The Bank has the following departments: Accounting Department, which performs accounting and prepares financial statements; Economics Department, which analyses economic developments and trends, in particular those related to prices and financial markets; Information Technologies Department, which prepares and implements the Bank’s information technology strategy and administers the Bank’s information systems; Cash Department, which is responsible for the issue of good quality and secure cash into circulation and withdrawal of worn banknotes and coins 24 Bank of Lithuania

from circulation and provision of cash services to commercial The Bank of Lithuania has the following independent divi- banks; sions: Credit Institutions Supervision Department, which monitors General Division is responsible for all the office work and the compliance of credit institutions with the standards of safe and administration of general matters at the Bank. reliable banking established by laws and other legal acts as well Legal Division is responsible for assistance in performing and as international standards; implementing the functions and rights of the Bank of Lithuania Payment Systems Department, which oversees the payment through legal measures. and securities settlement systems operating in the country Organisation and Personnel Division is responsible for the and ensures the functioning and development of the payment implementation of the Bank’s personnel and organisation man- systems of the Bank of Lithuania; agement policy and the coordination of strategic operational Market Operations Department, which invests foreign planning within the Bank; reserves of the Bank of Lithuania, performs litas and anchor cur- Public Relations Division is responsible for the provision of rency exchange operations and implements monetary policy information to the public and the media about the activities of measures applied by the Bank of Lithuania; the Bank of Lithuania; Statistics Department, which collects, compiles and dissemi- Risk Management Division coordinates the risk management nates monetary, financial and external statistics; process within the Bank of Lithuania; International Relations Department, which is responsible Internal Audit Division audits all the activities of the Bank and for the participation of the Bank of Lithuania in the European provides recommendations on operational improvements and System of Central Banks and the activities of the European Un- the efficiency of the internal control system; ion institutions and its cooperation with international financial Kaunas and Klaipėda Branches provide services to com- organisations; mercial banks and their structural units within their respective General Services Department, which is responsible for the regions by supplying them with litas banknotes and coins and creation of optimal working conditions for the Bank’s employees centas coins. and ensures proper technical condition and operation of fixed To ensure closer cooperation with the EU institutions, a position tangible assets; of Attaché for Monetary and Banking Affairs of the Republic of Security Department, which ensures the overall security of the Lithuania was established at the Permanent Representation of Bank of Lithuania property, valuables, staff and information. Lithuania to the European Union in Brussels. Bank of Lithuania

Transparency, Promotion of Science, Contribution to Culture

In implementing its functions, the Bank of Lithuania applies transparency standards formed by the global central banking practice. Various communication channels are used for keeping the general public informed about the Bank’s activities. Efficient communication not only helps to increase confidence in this important financial institution of the State, but also provides the public with necessary knowledge on banking and macroeco- nomics. The Bank of Lithuania regularly prepares and publishes its Annual Report. It contains information on key monetary policy tasks and their implementation, monetary policy operations, supervision of credit institutions and activities undertaken in performing other functions established by the laws, as well as on the country’s macroeconomic situation. Each year, the Bank of Lithuania also publishes its Annual Financial State- ments that include the Auditor’s Report. Twice a year, the Chairman of the Board of the Bank of Lithuania presents

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reports to the Seimas of the Republic of Lithuania on the imple- e-mail or by telephone. mentation of the primary objective by the central bank, per- The publications of the Bank provide information on its activi- formance of its functions and the situation in commercial banks, ties, present monetary and banking, balance of payments and and reviews the development of the country’s economy. financial statistics and introduce litas banknotes and coins. The Lithuanian and foreign media are regularly informed about publications are distributed free of charge inside the country the national banking and financial systems. Board resolutions, and abroad, whereas their electronic versions are available on information on payments, financial stability reviews, macroeco- the Bank’s website. nomic forecasts, information on operations of credit institutions The Bank of Lithuania issued a number of books on money and operating in Lithuania, participation of the Bank in the European banking history and on the representation of money in graphic System of Central Banks, international relations, etc., are available arts, photographs, small-format graphics and cartoons. on the website of the Bank of Lithuania (www.lb.lt) in Lithuanian In close cooperation with the European Central Bank, the Bank and English. of Lithuania publishes ECB’s press releases in Lithuanian and The Bank uses various methods and tools to promote eco- prepares and disseminates the publications of the ECB in Lithua- nomic education and raise economic literacy of the population. nian together with the experts of the European Central Bank. Employees of the Bank participate in public discussions, publish articles in newspapers and online, give lectures to students at universities, organise seminars for journalists, business people and other target groups about the country’s macroeconomic situation, finance and banking. The Bank organises presentations of new collector (commemorative) litas coins to the public and exhibitions related to money. Answers are provided to inquiries by individuals from Lithuania and other countries received by

26 27 Bank of Lithuania

Periodicals Report on the Implementation of the Primary Objective of the Bank of Lithuania, Performance of Its Functions and the Situation in the Banking System; Annual Report of the Bank of Lithuania; Monthly Bulletin of the Bank of Lithuania (electronic version from 2010); External Statistics; Banking Statistics Yearbook; Financial Stability Review; Monetary Studies (an academic journal); Working Paper Series publications.

The Bank of Lithuania cooperates in the publication of the following pe- riodic publications of the European Central Bank: the quarterly version of the Monthly Bulletin, the Annual Report, the Convergence Report and the General Documentation on Eurosystem Monetary Policy Instruments and Procedures.

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Monetary Studies Monetary Studies, an academic journal of the Bank of Lithuania, Monetary Studies has earned recognition among local scien- has been published since 1997. It is a biannual publication avail- tists, students, economists and experts in other fields, who are able free of charge. Monetary Studies presents scientific articles interested in the issues of economics and economic policy. and reviews by Lithuanian and foreign authors, which analyse is- Since 2006, it has been published in Business Source Com- sues related to economics, development of financial and money plete, a database of EBSCO Publishing, Inc. markets, banking, macroeconomic process modelling and Following the decision of the Research Council of Lithuania, forecasting. It also provides overviews of current relevant issues, the academic journal Monetary Studies has been included as well as comments and reviews of scientific works. The aim of in the list of academic publications, whereas scientific works the publication is to create conditions for employees of the Bank published in it are recognised as qualified for awarding an of Lithuania, staff members of the Lithuanian scientific research academic degree, name or otherwise assessing academic and other institutions and foreign researchers to publish the skills of employees, researchers or lecturers of the country’s results of their researches and express their opinions. academic institutions.

28 29 Bank of Lithuania

Vladas Jurgutis Award In 1997, when celebrating the 75th anniversary of the Bank of Lithuania and the national currency litas, the Bank of Lithuania established the Vladas Jurgutis Award to commemorate the merits of Vladas Jurgutis, an academician, professor and the first Governor of the Bank of Lithuania, to the Lithuanian banking. Vladas Jurgutis Award is offered for significant works (monographs, course books, scientific articles, theses) in the area of Lithuanian banking, finance, monetary and macroeconomic research. It is a contribution of the Bank of Lithuania to the development of science in Lithuania. Starting with 2008, the decision on the winners of the award is made by the Bank of Lithuania and the Lithuanian Academy of Sciences. The award amounts to LTL 50.000

30 Bank of Lithuania

Scholarships Money to Students Museum Vladas Jurgutis Scholarship was established in 1990. It is The museum that opened in 1994 does a very important work awarded for one academic year to two best full-time students of by contributing to the preservation of the Lithuanian cultural banking and finance at universities of the Republic of Lithuania. and historical heritage. Holdings of the museum currently con- University faculties that have banking and finance departments stitute around 40 thousand exhibits related to the development nominate candidates for the scholarship. Decisions on awarding of banking and monetary relations in Lithuania, the history of the scholarship are taken by the Board of the Bank of Lithuania. the Bank of Lithuania, the development and production of the The scholarship equals the minimum monthly wage. national currency and its security features. After completion of studies, a number of students that were Presently, the museum is under reconstruction. Attractive and awarded this scholarship began working at the Bank of Lithuania valuable exhibits and interactive tools will offer more possibili- and the European Central Bank. ties to learn about the Bank of Lithuania and the rich national and world money history and will contribute to the economic education of the country’s population. A permanent exposition of the museum of the Bank of Lithua- nia is open in the Bank’s building in Kaunas. It focuses mainly on the history of the Bank of Lithuania and the litas.

31 Bank of Lithuania

History After the restoration of its independence in 1918, for several years Lithua- nia did not have its own bank of issue. For some time after World War I, currencies of other countries circulated in Lithuania. By agreement with the German Darlehnkasse Ost, the mark served as the main legal tender in Lithuania at that time. In the middle of 1922, the value of the mark started tumbling down. Hyperinflation brought trade and the operation of finance and credit institutions into disarray. The Seimas of the Republic of Lithuania urgently passed the laws on the introduction of the Lithuanian monetary unit, the litas, and the establishment of the Bank of Lithuania. The Bank of Lithuania was a joint stock company, with a capital of LTL 12 million. 80 per cent of the shares were held by the State Treasury. In the beginning of October 1922, the Bank of Lithuania started operating in the provisional capital Kaunas. It was granted an exclusive right to issue banknotes, regulate currency circulation and ensure a stable monetary system. For the first time the litas was issued into circulation on 2 October 1922. Stability of the value of the litas was ensured by gold and foreign currency reserves and securities. The Bank of Lithuania pursued a tight monetary policy, which helped to maintain a stable exchange rate of the litas even in times of economic crises. The litas gained in confidence and became one of the most stable currencies in the world. After the occupation of Lithuania by the Soviet Union in 1940, its banks were nationalised and the Bank of Lithuania became a subsidiary of the 32 Bank of Lithuania

Recovery of Gold national bank of the USSR in the autumn of the same year. Start- In summer 1940, before the Soviets occupied the country, the ing with 25 March 1941, the rouble introduced by the Soviets Bank of Lithuania kept its gold holdings of 9,593.4 kg in five was the sole legal tender. The use of the litas was banned, and foreign countries. the litas banknotes and coins of that time were destroyed. In 1992, after the restoration of Lithuania’s independence, France After World War II reached Lithuania, the Soviet occupants and Great Britain returned to Lithuania its gold holdings of were forced out of the country. On 5 July 1941, the Provisional 2,246.5 kg and 2,946.9 kg, respectively. In 1940, the Bank for In- Government of Lithuania that was formed as a result of the anti- ternational Settlements took over 62.2 kg of gold of the Bank of Soviet uprising founded the Bank of Lithuania. The Nazis, who Lithuania as a compensation for the losses incurred due to the were the next to occupy our country, allowed it to operate only freezing of its account with the Bank of Lithuania. The remain- as a commercial bank with no right of issue. On 30 April 1943, ing portion of gold (569.8 kg) was recovered from the Bank for the operations of the Bank of Lithuania were terminated. International Settlements in 1992 as well and later transferred After the repeated occupation of Lithuania at the end of World to the Bank of Lithuania gold accounts in the Bank of England. War II, the Soviet Union renewed operations of structural units Currently, all Lithuania’s gold is held there. In 1992, Sweden’s of the USSR’s national bank and other Soviet banks, which were government paid 21.1 million of German marks for the gold that liquidated following the restoration of Lithuania’s independ- Lithuania held in the central bank of Sweden before World War ence. II. The gold of the Bank of Lithuania held with the US Federal Re- The present Bank of Lithuania was established on 1 March 1990. serve System was used after World War II to finance the activities The national monetary system was created on 1 October 1992, of the independent Lithuania’s diplomatic service in exile. when circulation of the rouble was stopped and the talonas became the provisional currency. The current litas was issued into circulation on 25 June 1993. 33 The most significant historical dates for the Bank of Lithuania can be found on the Bank’s website. Cultural Heritage It is symbolic that the head office of the central bank of the Republic of Lithuania – the Bank of Lithuania – is located in the first building in our country constructed specially for a bank in the centre of Vilnius (in 1889 according to the plan of the architect Vyacheslav Steiner). The buildings constructed at that time for Vilnius Land Bank make up the central part of the present building complex of the Bank of Lithuania, which consists of buildings in Gedimino avenue 6, Totorių street 2 and Totorių street 4. The formation of the complex took place from 1874 to 1966: new houses were built, their purpose was changed, other houses were torn down, reconstructed or additionally decorated. The late 19th century interiors changed over time, although they preserved basic elements of historicism. The present-day meeting room of the Board of the Bank of Lithuania is one of the most splendid rooms in the complex. Its walls are decorated with the portraits of governors of the Bank of Lithuania in the pre-war period: Vladas Jurgutis (1885–1966), Vladas Stašinskas (1874–1944), Juozas Paknys (1883–1948) and Juozas Tūbelis (1882–1939). In 2003, the building complex of the Bank of Lithuania was included in the Register of Immov- able Cultural Valuables of the Republic of Lithuania. Antanas Smetona, the future president of the first Republic of Lithuania, used to work there, in Vilnius Land Bank, in 1903 to 1915. According to his 34 35 Bank of Lithuania

contemporaries, Juozapas Montvila, one of the bank’s managers A branch of the pre-war Bank of Lithuania in Klaipėda was and a patron of culture, helped him and other Lithuanians to get established in 1923. The branch was established in the building employed at this regional bank of the Russian empire. of the former branch of the German bank Reichsbank in the cen- The old building of the Bank of Lithuania in Kaunas, at the tre of the old town of Klaipėda, which was purchased from the intersection of Maironis and Donelaitis streets, retains the noble said bank. This building was built in 1858 specially for a branch spirit of the Lithuanian banking in the past. The cornerstone for of the Bank of Prussia. After the restoration of the Republic of the building was laid in early 1925, whereas at the end of 1928 Lithuania, the building was used by the branch of the current prelate Jonas Mačiulis-Maironis consecrated the completed Bank of Lithuania. In 1999, the branch was moved to the build- buildings of the Bank of Lithuania. To furnish the interior of the ing specially constructed for the bank in Naujoji Uosto Street. neoclassical building, furniture and chandeliers were bought The latter building is a modern piece of architecture, compared in various cities of Western Europe. In 2003, the building was to the historical buildings of the Bank of Lithuania in the centre declared a cultural monument. Many cultural valuables and of Vilnius and Kaunas. The building stands on a bank of the Curo- antique items (which include antique furniture manufactured nian Lagoon, near the port gate to the Baltic Sea in Kaunas according to a special order of the Bank) have been preserved in this building. The walls of the Bank are decorated with paintings by twenty famous Lithuanian painters of those days, such as Antanas Žmuidzinavičius, Petras Kalpokas, Justinas Vienožinskis, Jonas Mackevičius and others. The building has al- ways been used by banks. Now it hosts the Kaunas branch of the Bank of Lithuania, and a part of the premises has been leased. 34 35 Bank of Lithuania Gedimino av. 6, LT-01103 Vilnius Internet website: www.lb.lt E-mail [email protected] Telephone for inquiries: +370 5 268 0029 Fax: +370 5 262 8124

Kaunas Branch Maironio st. 25, LT-44250 Kaunas Tel: + 370 37 49 06 00

Klaipėda Branch Naujoji Uosto st. 16, LT-92122 Klaipėda Tel: +370 46 31 26 52

ISBN 978-9986-651-56-7 ISBN 978-9986-651-57-4 (ONLINE)

Bank of Lithuania © Lietuvos bankas, 2009 Third revised edition Prepared by the Public Relations Division of the Bank of Lithuania Design by Virgaudas Minialga Photographs by Gediminas Bartuška (ELTA), Rolandas Ginaitis (Bank of Lithuania), Šarūnas Mažeika (BFL), Gediminas Savickas (BFL), Tomas Urbelionis (BFL), HAAP Media Ltd., iStockphoto and from PhotoAlto CD World of Money Front cover features the sculpture “Chloe” by Romualdas Kvintas located in the yard of the Bank of Lithuania Issued by the Bank of Lithuania, Gedimino av. 6, LT-01103 Vilnius Printed by UAB “Baltijos kopija”, Kareivių st. 13B, LT-09109 Vilnius