u r r a r x ARCHIVES

I [Distributed to the Council 1 9 2 7 11 and the Members of the League.] 0. 227. M. 89. . . [F. 396.]

G e n e v a , May 25th, 1927.

LEAGUE OF NATIONS

I

PROTOCOL

SIGNED AT GENEVA ON DECEMBER 10th, 1926.

WITH THE RELEVANT REPORTS OF THE FINANCIAL COMMITTEE AND COUNCIL RESOLUTIONS; TOGETHER WITH THE TEXT OF THE ESTONIAN FINANCIAL LAW7S

OF APRIL 29TH a n d MAY 3RD, 1927.

Publications of the League of Nations

I!. ECONOMIC AND FINANCIAL 1927. II. 45. CONTENTS.

Page I . In tro d u ctio n ...... 4 II. Report of the Financial Committee, dated December 8th, 1926...... 5

I II. Protocol signed by the Minister of Finance of Estonia on December 10th, 1926 8

IV. Resolution adopted by the Council on December 10th, 1 9 2 6 ...... 10

V. Report of the Financial Committee, dated March 9th, 1927...... 11

VI. Resolution adopted by the Council on March 10th, 1927...... 11

VII. Laws of April 29th and May 3rd, 1927 :

(a) Eesti Pank Statutes Law (April 29th, 1927)...... 11 (b) Law to terminate the Issue of Treasury and “ Change” Notes (April 29th, 1927)...... 24 (c) Monetary Law of Estonia (April 29th, 1927)...... 25 (d) Foreign Loan Law (May 3rd, 1927)...... 26 I. INTRODUCTION.

In September 1924, the Estonian Government requested the Financial Committee of the League of Nations to advise it as to what policy it should pursue in view of the economic and financial difficulties which then confronted Estonia. After an enquiry had been made on the spot by M. Avenol and Mr. Loveday, the Financial Committee gave its advice on the points requested. This advice, together with a description of the general economic and financial situation of the country, was published in March 1925 1. In the autumn of 1926, the Estonian Government asked for further advice, in view of the fact that it was considering important financial reforms. Upon the report of one of the members of the Financial Committee, M. Albert Janssen, who made a special visit to the country, and after hearing M. Sepp, the Minister of Finance, and Sir Walter Williamson, Financial Adviser to the Estonian Government, the Financial Committee, on December 8th, 1926, submitted to the Council a report (Document II) and a draft Protocol (Document III) for the signature of the Estonian Government. Both texts were approved by the Council on December 10th, 1926 (Document IV), and the Protocol was signed the same day. The Financial Committee submitted a short progress report on the question on March 9th, 1927 (Document V). This was approved by the Council the following day (Document VI). The Protocol provided for the preparation of three laws by the Estonian Government in co-operation with the Financial Committee, viz. : (а) A law for reforming the Bank of Issue and including the Statutes of the said Bank. (б) A law for the transfer to the Bank of Issue of the State note issue. (c) A currency law. The Financial Committee appointed a Sub-Committee, consisting of M. Albert Janssen, Sir Otto Niemeyer and Sir Henry Strakosch, to approve the text of these laws on its behalf. The text of the laws was prepared in co-operation with this Sub-Committee and was adopted by the Estonian Legislature on April 29th, 1927. The text of these laws is given in Document VII.

1 Report of the Financial Committee of the League of Nations on the Economic and Financial Situation of Estonia (document C.240.1925.II). Price is. 3d. ; So.30. (French text, francs 1.50) (Swiss).) II REPORT OF THE FINANCIAL COMMITTEE, DATED DECEMBER 8th, 1926.

The Financial Committee has considered a request from the Estonian Government for advice regarding certain financial reforms now under consideration by the Estonian Government. The Estonian Government had requested that a member of the Financial Committee should visit Estonia in order to make an enquiry on the spot. Accordingly, M. Janssen visited Estonia (November 30th to December 2nd) and submitted a report to the Committee, supple­ mented by verbal explanations. In addition, the Committee had the advantage of receiving further explanations from M. Sepp, the Finance Minister of Estonia, and Mr. Williamson, Financial Adviser to the Estonian Government. It may be convenient in the first instance to recall the previous history of this question. On September 13th, 1924, the Estonian Government requested the Council to procure an autho­ ritative opinion on the financial and monetary situation of Estonia. Accordingly, the Financial Committee was requested by the Council to study the matter with a view to giving the desired opinion, and a delegation consisting of M. Avenol, Deputy Secretary-General of the League of Nations, and Mr. Loveday, Head of the Economic Intelligence Service, visited Estonia in January 1925 and submitted a report which was approved by the Financial Committee and adopted by the Council in March of that year (document C.240.M.92.1925). This report contained recommendations that the existing Statutes of the Bank of Estonia should be amended so as to make the Bank completely independent of the State, that the metal reserve of the State should be handed over to the Bank of Estonia and that the State note circulation should be transferred and amalgamated with that of the Bank. Moreover, the Financial Committee expressed the view that, “before the situation can be considered normal, it will be necessary to relieve the Eesti Pank of the large quantity of frozen credits with which it is burdened”. At the same time, the Committee suggested that the Estonian Government “might also consider the question of founding a Mortgage Institute to take over all long-term operations which are at present effected by the Government". It is in order to carry the above recommendations into practical effect that the Estonian Government has again approached the Financial Committee. The Committee would emphasise the fact that the Estonian budget has been balanced since 1922 and that the economic condition of the country has materially improved during the last two years. The Central Bank is, however, burdened with a large amount of illiquid credits of which it is essential that it should be relieved. The Financial Committee is of opinion that, in order to carry out the monetary reform and to render liquid the position of the Bank, it will be necessary for the Estonian Government to raise a foreign loan secured by specific Estonian revenues. The scheme which the Financial Committee proposes may therefore be summarised as follows : («) A currency law. (b) The reform of the Statutes of the Bank of Issue. (c) The transference to the Bank of Issue of the State note issue, together with the gold and other assets held against it. (d) The establishment of a Mortgage Institute. (e) A foreign loan. The scheme proposed may now be described in greater detail.

1. Currency Law.

The Financial Committee recommends that, simultaneously with the passing of the Bank Statutes, a new monetary law should be enacted. It is not thought advisable that Estonia should go to the expense of putting gold coins into domestic circulation. The currency system should be based on the gold exchange standard.

2. Bank of Issue.

The main principles on which the Statutes of the reformed Bank of Issue should be drafted may be set out as follows :

A. Functions. (1) The Bank must have the sole right of note issue. The Government and local authorities must have no right to issue notes or to borrow from the Bank, except in the case of the Government, which may borrow in temporary anticipation of revenue and subject to prescribed conditions of repayment. (2) The Bank must be a central bank, fulfilling the functions of a bankers' bank. (3) The Bank should guide the monetary policy of the country and fix the bank rate. Its duty is to keep the value of the monetary unit stable, neither attempting an apprecia­ tion nor allowing a depreciation. — 6 -

It is proposed, as indicated above, that the gold exchange standard system of currency should be adopted in Estonia and that the Bank should be placed under a statutory obligation to redeem its notes in stable foreign exchange within two years after the enactment of the Bank’s statutes and maintain the value of the currency within the gold points.

(4) The Bank should not allow interest on current accounts or accept fixed-time deposits.

(5) The main business of the Bank should be the discounting of commercial bills of a self-liquidating character, corresponding to real and normal transactions ; these bills should bear the signature of at least two solvent persons and should not have a longer currency than 90 days, except in the case of agricultural and timber bills, for which a maximum currency of six and nine months respectively may be admitted. In no case should the Bank make, or be entitled to make, unsecured loans or give long­ term credit.

(6) The Bank should act as cashier for the State.

B . Management and Control.

(7) The Eesti Pank should be founded as a private company with a paid-up share capital of 500 million Emk. It is contemplated that, in the first instance, it will be unavoidable that the whole of this capital Mill have to be taken up by the Government ; but the Government undertakes to endeavour to dispose of its shares by public issue or otherwise after the new Statutes of the Bank have been in operation for a period of two years.

(8) The direction of the Bank should be entrusted to a Board of Directors, six of whom should be representative of the general economic interests of the country. The President of the Bank should be nominated by the Government of the Republic for a period of five years. Two members of the management with a seat on the Board of Directors should be nominated by the President from among the Managers of the Bank. The Managers of the Bank should be appointed and may be dismissed by the Board of Directors. All the first-appointed Managers of the Bank should, however, be approved by the Government. To assist the successful execution of this plan and in order to increase the confidence of lenders, it will be necessary for a period of three years to associate with the Bank an adviser. This adviser might be nominated by the Council of the League of Nations. His powers should be similar to those of the advisers to other national banks and relate solely to the affairs of the Bank.

9. The statutes should contain appropriate provisions with regard to reserves.

10 • The Bank should publish each week a detailed balance-sheet of its position.

C . General.

The Bank as at present constituted is practically a State Department with no independent capital. The Government has, however, from time to time made advances to the Bank out of its own independent reserve, advances which at the present amount to 2,372 million Emk. The Treasury note issue amounts to 1,942 million Emk., against which the Government holds gold amounting to 537 million Emk. When the Government note issue is handed over to the Bank, the following position would therefore result :

Emk. (000,000’s) Treasury notes in circu latio n ...... 1,548 Treasury notes in B a n k ...... 394

T o ta l...... 1,942 Treasury gold u n p le d g e d ...... 537

Leaves Treasury liabilities on account of n o tes...... 1,405 Treasury assets with the B a n k ...... 2,372 Less Treasury note liabilities as a b o v e ...... 1,405

S urplus...... 967

It is recommended that this surplus of 967 million Emk. should be utilised by the Govern­ ment for relieving the Eesti Pank of part of its illiquid assets. Further, these assets should be written down to the extent of 200 million Emk. out of the Government profit from the operations of the Bank during the year 1926, — 7 —

The total loans, discounts and advances of the Eesti Pank amount to 5,882 million Emk. The Committee is of the opinion that, of this sum, assets amounting to approximately 3,000 million Emk., mainly mortgage loans, are of such a character that it is imperative that the Bank of Issue should be relieved of them. It recommends therefore that £1 million sterling, which is equivalent to 1,800 millions Emk., from the foreign loan should be paid by the Estonian Government to the Bank in exchange for long-term assets of a similar amount. The Bank would thus be left, after deducting the 967 million Emk. referred to above, plus the equivalent of £1 million sterling, namely, 1,800 million Emk., plus the 200 million Emk. written down, with a balance of 2,915 million Emk. of discounts, loans and advances. Of this balance the Financial Committee considers that credits amounting to approximately 1,500 million Emk., though more liquid than those referred to above, are still mainly long-term in character. It recommends therefore that these should only be left with the bank of issue provided that they are guaranteed by the Government and that they are liquidated at the earliest possible date. The approval of the Bank Adviser should be obtained with reference to the selection both of those credits which should be transferred to the Mortgage Institute and of those which should be retained under a Government guarantee.

1. The situation of the Eesti Pank on September 30th, 1926, was as follows : Assds. Liabilities. Emk. (000,000’s) G o ld ...... 503 Capital fully paid u p ...... 250 Foreign b an k n o tes...... 27 Reserve funds...... 250 Foreign correspondents’ accounts. . 202 Premises depreciation fund...... 7 Treasury notes and small coins. . . 413 Notes in circulation...... 1,884 Foreign bills...... 136 Time d e p o sits...... 237 Home bills...... ■ i,75i Government long-term deposits. . . 2,372 Advances on current accounts . . . ■ 3,479 Current accounts of the Treasury and Other lo a n s ...... 652 other State Institutions...... 1,358 Commercial credits and guarantees . 534 Other current accounts...... 542 Bonds...... ■ 151 Liabilities in foreign currency . . . 79 Sundry accounts...... 357 Commercial credits and guarantees . 537 Sundry accounts...... 689

8,205 8,205

If the measures suggested above were applied to this particular balance-sheet, the position of the bank would be modified approximately as follows :

vlsse

3. Mortgage Institute.

It is suggested that the long-term assets, amounting to 2,767,000,000 Emk., should be trans­ ferred from the Eesti Pank to a special Mortgage Institute to be established by the Government. The primary function of this Institute should be to liquidate gradually these outstanding loans ; but it might grant further credits secured by mortgages out of its own capital or any further sums raised by the issue of mortgage bonds to the public without recourse in any circumstances to the Bank of Issue. This Mortgage Institute would be under the direct control of the Government. The Committee is of opinion that this Institute should receive a sum of £350,000 as working capital.

4. A Foreign Loan.

(а) An international loan yielding an effective sum of £1,350,000 is thus required. (б) The Financial Committee proposes that the loan should be secured on certain assigned revenues of the Estonian State, with the provision that additional revenues should be assigned, if necessary, and that these assigned revenues should be placed under the control of a Trustee to be appointed by the Council of the League of Nations, in accordance with the terms of the Protocol, the draft of which is attached to this report. (c) The Financial Committee proposes that the revenues assigned to the service of the loan should be the excise duties on : (a) Tobacco ; (b) Beer ; (c) Matches and other minor articles.

The actual yield of these revenues during the year 1925 was 488 million Emk. The estimated yield according to the budget for the fiscal year 1926-27 is 500 millions, of which about 400 millions from tobacco and the greater part of the remainder from beer. There is reason to believe, in view of the actual yield to date, that the effective revenue from excise duties will exceed the estimates by at least 50 million Emk. If the yield of these revenues proves inadequate, the Trustee should, in accordance with Article II of the Protocol, be empowered to demand the allocation of additional revenues. The Financial Committee considers, however, that the excise duties are sufficient to be assigned in the first instance. The Financial Committee recommends that these assigned revenues should be held in a blocked account controlled by the Trustee and that it should be his duty to retain such sums as are required for the service of the loan.

The Committee has already discussed with the Estonian Finance Minister rough provisional drafts of the proposed new currency law, of the law relating to the transference of the Govern­ ment note issue to the Bank of Issue, and of the law for the reform of the Bank of Issue, including the Statutes of the Bank ; and on the general principles incorporated in these drafts, agreement has been reached. The Committee proposes, either itself or through a Sub-Com­ mittee, to approve the final text of the said laws in accordance with Article V of the Protocol. The Committee submits to the Council, for its consideration, the name of M. Janssen as Trustee of the loan. In conclusion, the Committee recommends to the Council the annexed draft Protocol for signature by the duly authorised representative of the Estonian Government.

III. PROTOCOL SIGNED BY THE MINISTER OF FINANCE OF ESTONIA ON DECEMBER 10 th, 1926.

Whereas the Estonian Government has made certain proposals involving the issue by that Government of a loan the yield of which shall be applied for the purpose of establishing the currency on a gold or gold exchange basis, relieving the Eesti Pank of certain assets unsuitable for a Bank of Issue and founding a Mortgage Institute for the latter purpose ; And whereas it is desirable that such loan should be issued under the auspices of the League of Nations ; And whereas the Council has approved for this purpose the provisions of the present Protocol : The undersigned, duly authorised for the purpose, accepts on behalf of Estonia the following provisions :

Article I . — Loan.

1. For the purpose of carrying out the provisions of Article IV, and subject to the enactment by the Estonian Legislature and the approval by the Financial Committee of the League of Nations of the legislation contemplated by Article V, the Estonian Government may issue a loan for the objects hereinafter described, yielding an effective sum equivalent to not more than one million three hundred and fifty thousand pounds sterling ; the expenses of ssue, negotiation and delivery shall be added to the capital of the loan as fixed above. 2. The yield of this loan may not be employed except in conformity with the provisions of the present Protocol. 3. The capital and interest of the loan contemplated under paragraph i above shall be paid by the Estonian Government free of all deduction in respect of taxes, dues or charges for the benefit of the Estonian State. 4 The conditions of the loan, the issue price, the rate of interest, the amortisation, and the expenses of issue, of negotiation and of delivery shall be submitted for approval on behalf of the Financial Committee of the League of Nations to a person appointed by the Committee for this purpose ; the amount of the annuity necessary for the service of interest and amortisation of the loan shall likewise be so approved. 5. The yield of the loan shall be paid as directed by the Trustee to be appointed by the Council of the League of Nations (Article III) into a special account or accounts which he, or such person or persons as may be appointed by him for this purpose, may alone control.

Article II. — Securities and First Charge.

1. The Estonian Government will furnish as securities for the loan contemplated under Article I the following revenues : Excise duties on : (a) Tobacco ; (b) Beer ; (c) Matches and other minor articles.

2. The amount required for the service of the loan, together with the service of any pre­ existing loan entitled to be treated pari passu with any secured loan, shall be, and shall remain, a first charge upon the revenues mentioned in paragraph i, and the Estonian Government acknowledges that such revenues shall stand charged accordingly. 3. The revenues mentioned in paragraph i shall not be used as a security for any new loan without the consent of the Trustee of the present loan. 4. The Estonian Government will not take any measures which, in the opinion of the Trustee, would be such as to diminish the aggregate value of the revenues mentioned in para­ graph I to such an extent as to threaten the security of the bondholders. All decisions taken by the Trustee in virtue of this paragraph shall require confirmation by the Council if, within fourteen days of the notification of any such decision by the Trustee to the Estonian Government, the latter shall have lodged an appeal against it with the Council. 5. If the total yield during any quarter of the financial year of the revenues or assets already assigned shall be found to be below 150 per cent of one-quarter of the annual sum required to meet the service of the loan, the Trustee may demand that additional revenues or assets sufficient to assure the immediate restoration of the yield to the above percentage be assigned. In case of dispute, the Estonian Government shall have the right to appeal to the Council within fourteen days of the notification of the aforesaid demand on the grounds either that the said total yield during any quarter has not fallen below 150 per cent of one-quarter of the said annual sum or that the additional revenues or assets demanded are not necessary to restore the percentage.

Article III. — Trustee.

1. The Council of the League of Nations will appoint a Trustee of the loan, and the Estonian Government accepts that the Trustee shall fulfil the functions and perform the acts assigned to him in this Protocol until the loan and every part thereof shall have been completely discharged. The Estonian Government shall provide the Trustee with any information he may request for the exercise of his functions. 2 • The revenues mentioned in Article II, paragraph 1, shall be paid into a special account as and when collected, for the purpose of assuring the service of the loan. The Trustee, or such person or persons as may be appointed by him for this purpose, shall alone control this account. 3 • Any balance of the account not retainable in accordance with the following provisions or with the terms of issue of the loan shall be reimbursed to the Estonian Government, subject, however, to the powers conferred on the Trustee in the event of a default under paragraph 5 (b) below. 4 - The remuneration of any person or persons appointed by the Trustee to control the accounts mentioned in paragraph 2 above and in Article I, paragraph 5, shall be fixed by the Trustee in agreement with the Estonian Government or, in the event of disagreement, be deter­ mined by the Council of the League of Nations. 5 ■ The terms on which the loan is issued shall include, among other provisions : (a) Provisions as to the amounts which, at the intervals fixed by such terms, shall be set aside by the Trustee and retained for the service of the loan, including interest, amor­ tisation and all charges, commissions or other payments to be met by the Estonian Govern­ ment in connection therewith. (b) Power for the Trustee to retain, collect, or otherwise provide out of the said revenues (including such other revenues as may be brought into the charge under the provisions of Article II, paragraph 5) sufficient sums to remedy and make good any default of the Estonian Government in whole or in part in carrying out any of its obligations contained in the conditions of the loan.

Article IV. — Employment of the Loan.

The yield of the loan shall be applicable to, and the Trustee shall permit payments to be made therefrom, for the following purposes only : (1) The payment by the Estonian Government to the Bank of Issue of an amount equivalent to one million pounds sterling, in exchange for long-term assets of the Bank. (2) The application by the Estonian Government of the balance of the loan for the establishment of a Mortgage Institute.

Article V . — Legislation.

The Estonian Government undertakes to submit to the Estonian legislature within three months of the signature of this Protocol : (a) A law for reforming the Bank of Issue, including the Statutes of the saidBank ; (b) A law for the transfer to the Bank of Issue of the State note issue ; (c) A currency law. The laws enumerated above shall be drafted on the lines of the Report of the Financial Committee (Document II). The text of the said laws shall be submitted for approval to such person or persons as the Financial Committee of the League of Nations shall appoint for the purpose. Article VI. — Adviser to the Bank of Issue. For a period of three years the Government shall appoint as Adviser to the Bank of Issue such person as may be nominated by the Council of the League of Nations. The powers of the Adviser shall be defined in the Statutes of the Bank, which shall form part of the legislation contemplated under Article V, paragraph (a), above.

Article VII. — Final Provisions.

1. Any difference as to the interpretation of this Protocol shall be settled by the Council of the League of Nations. 2. All decisions to be taken by the Council in execution of this Protocol shall be taken by a majority vote. 3. This Protocol, of which the French and English texts are both authentic, shall be ratified by Estonia,.and the ratification shall be deposited at the Secretariat of the League of Nations as soon as possible. In faith whereof the undersigned, duly authorised for the purpose, has signed the present Protocol. D o n e at Geneva on the tenth day of December nineteen hundred and twenty-six, in a single copy, which shall be deposited with the Secretariat of the League of Nations and be registered by it without delay. (Signed) Leo S e p p , ______Minister of Finance.

IV. RESOLUTION ADOPTED BY THE COUNCIL ON DECEMBER i o t h , 1926.

The Council : 1. Notes and adopts the report of the Financial Committee putting forward a scheme of banking and monetary reform ; 2 • Approves the form of the Protocol attached thereto to be signed by a representative of the Estonian Government ; 3 . Recognises the importance of the problem and declares its readiness to associate itself with the scheme. Note. — The Council also, on December ioth, 1926, appointed M. Albert J a n ssen as Trustee for the Estonian Loan. — II —

v. REPORT OF THE FINANCIAL COMMITTEE, DATED MARCH 9TH, 1927. At its meeting in December last, the Financial Committee appointed a Sub-Committee to approve on behalf of the Committee, in accordance with Article V of the Estonian Protocol, the text of three draft laws which the Estonian Government undertook to submit to the Estonian Legislature, viz. : (a) A law for reforming the Bank of Issue, including the Statutes of the said Bank ; (b) A law for the transfer to the Bank of Issue of the State note issue ; (c) A currency law. The Sub-Committee, in co-operation with experts of the Estonian Government, has agreed the texts of these laws. The Financial Committee has appointed its Chairman, Dr. Vilem P o s p is il , to approve the conditions of the loan on behalf of the Financial Committee, in conformity with Article I, sub. 4, of the Estonian Protocol.

VI. RESOLUTION ADOPTED BY THE COUNCIL ON MARCH i o t h , 1927.

The Council takes note of and approves the report of the Financial Committee concerning the banking and currency reform in Estonia.

Noie. — The Council, on March n th , 1927, nominated Sir Walter W illia m so n , K.C.M.G., as Adviser to the Bank of Issue.

VII. LAWS PASSED BY THE ESTONIAN PARLIAMENT ON APRIL 29TH AND MAY 3RD, 1927.

(a) Eesti Pank Statutes Law.

Contents. Part Articles I. Constitution and Main Function ...... 1 - 6 ( Funds of the B a n k ...... 7 I I.< Share Capital...... 8 - 11 ( Reserve and other Special F unds...... 12 III. General Meetings of S h a re h o ld e rs ...... 13-24 IV. Board of Directors...... 25-36 V. Board of M anagem ent...... 37 - 39 VI. Staff of the B a n k ...... 40 V II. Discount Committees...... 41-42 V III. Auditors...... 43 IX. Relations with the S ta te ...... 44-46 X. Accounts and Statem ents...... 47-50 XI. Business of the Bank...... 51 - 57 XII. Cover for Current Liabilities...... 58-61 XIII. Note Issue...... 62-66 XIV. Special Rights of the B an k ...... 67-69 XV. Winding-up of the B a n k ...... 70-71 XVI. Temporary Appointment of A dviser...... 72-75 XVII. Transitory Provisions...... 76-82 XVIII. Date of coming of Law into force...... 83

The Statutes of the Eesti Pank, sanctioned by the Temporary Government on February 24th, 1919 (State Advertiser, 1919, No. 28-29), an& ^le Law to amend the said Statutes, passed by the Government on April 4th,1921, by virtue of the Temporary Constitution, Article12a (State Advertiser, 1921, No. 25), are hereby further amended and shall now read as follows:

P a rt I. — Constitution and M ain F u n c tio n .

Article 1. The Eesti Pank is a Central Bank of Issue endowed with the exclusive privilege of issuing banknotes in Estonia for a period of twenty-five years reckoned from the date on which this Law comes into force. During this period the Government of Estonia binds itself not to issue or reissue its own notes, or any other type of paper money, otherwise than as prescribed in Section 2 of the Law to Terminate the Issue of Treasury and “ Change” Notes of 1927, and not to issue any coinage other than subsidiary coins of denominations not higher than two krones, and these only in ; the manner prescribed in the Monetary Law of 1927. The Bank may ask for an extension of its note-issuing privilege not less than three years I before the expiration of the existing privilege. Article 2. The first duty of the Eesti Pank shall be to ensure that the gold value of its notes remains stable. To this end, it must exercise control, within the limits of its Statutes, over monetary circulation and credit in Estonia. Article 3. To ensure the convertibility of the Eesti Pank notes : (1) The Bank, on the requisition of any person who makes a demand or offer to that effect at the Head Office of the Bank at Tallinn, shall be bound to sell to, or to purchase from, such person in exchange for legal-tender currency of Estonia, at the rates defined in Sub- Sections (2) and (3) of this Article, respectively, the legal-tender currency of such foreign gold- standard country, or countries as may be notified in the State Advertiser, for immediate delivery in such foreign country or countries. Provided that no person shall be entitled to demand or offer an amount of foreign currency of less value than 5,000 krones of legal-tender money of Estonia. (2) For the purpose of determining the rate applicable to the sale of foreign currency under this Article, 2,480 krones shall be deemed to be equivalent to such sum in that foreign currency as is required to purchase 1,000 grammes of fine gold in that foreign country, at the rate at which the principal currency authority of that country is bound by law to sell gold in exchange for currency, after deduction from such sum of an amount to be fixed by the Bank representing the normal cost per 1,000 grammes of transferring gold bullion in bulk from Tallinn to that foreign country, including interest and insurance on its value during ; transit. (3) For the purpose of determining the rate applicable to the purchase of foreign currency ? under this Article, 2,480 krones shall be deemed to be equivalent to such sum in that foreign currency as is realised by the sale of 1,000 grammes of fine gold in that foreign country at the rate at which the principal currency authority is bound by law to purchase gold in exchange s for currency, after addition to such sum of an amount to be fixed by the Bank representing the normal cost per 1,000 grammes of transferring gold bullion in bulk from that foreign country j to Tallinn, including interest and insurance on its value during transit. (4) On the date on which the provisions of this Law become operative, the Bank shall notify in the State Advertiser at least one foreign gold-standard country for the purposes set forth in Sub-Section (1) of this Article. The Bank shall similarly notify any additions or | changes of the foreign gold-standard countries to which Sub-Section (1) of this Article is to I apply. The Bank shall also from time to time determine the equivalent rates in accordance » with the provisions of Sub-Sections (2) and (3), and shall notify in the State Advertiser the rates | so determined. Article 4. The Head Office and Direction of the Bank shall be at Tallinn. The Bank is empowered to establish Branches and Agencies anywhere in Estonia, and the Government of the Republic may require the establishment of such Branches or Agencies in municipal towns. Article 5. The President, or his Deputy, or two other members of the Board of Management jointly are authorised to sign Bank documents. The signatures referred to above may be applied in facsimile to the notes and share certificates of the Bank. The Board of Directors shall decide precisely the manner in which correspondence is to be signed, and the signatures required to be binding on the Bank, at the Head Office, Branches and Agencies. Article 6. The Bank shall publish its Returns and Notifications (including notices ofGeneral Meetings) in the State Advertiser, and in such newspapers as the Boardof Directors may decide.

P art II. — F und s of th e B a n k .

Article 7. The funds owned by the Eesti Pank shall comprise the following : (a) The Share Capital. (b) The Reserve Fund destined as provision for possible losses. (c) Any other special funds destined for purposes decided by the General Meeting. Share Capital.

Article 8. The Eesti Pank is a private company with a share capital of 5 million krones divided into 100,000 shares of 5° krones each. ’ The Bank will only recognise as the holder of a share the person who is inscribed as such on the Register of the Bank. The Bank will not recognise any lien or mortgage on its shares. The Board of Management is entitled to demand proof of the identity of a shareholder. The Board of Directors shall have the right to refuse to register any person as a share­ holder without being under obligation to give reasons for the decision.

Article 9. The capital of the Bank may be increased by the Board of Directors subject to the approval of the Government, and the issue price of new shares and the manner of issue shall be fixed by the Board of Directors, also with the approval of the Government.

Article 10. The share certificates may be accompanied by a coupon-sheet for the receipt of dividends, and a talon for the renewal of the coupon-sheet. The coupon-sheet and talon shall be made out to bearer. The share certificates shall be numbered consecutively and signed with the signature of the Bank (Article 5). Article 11. Unclaimed dividends on the shares of the Bank shall lapse in favour of the Bank ten years after the last day of the month in which they fall due for payment.

Reserve and Other Special Funds.

Article 12. The Reserve Fund and other special funds shall be built up out of the annual net profits as provided for in Article 50. Appropriations to the Reserve Fund may be suspended whenever it amounts to or exceeds the paid-up capital of the Bank.

P a r t III. — G e n e r a l Me etin g s of S hareholders.

Article 13. The General Meetings of shareholders constitute the full legal representation of the Company. The Ordinary General Meeting shall be summoned to take place every year at ialiinn, not later than in May, to decide the matters referred to in Article 21.

A rticle 14. Extraordinary General Meetings shall be convened by the Board of Directors when necessary. Upon the request in writing of duly qualified shareholders (vide Articles 15 and 18), representing at least one-quarter of the Share Capital, an Extraordinary General Meeting shall 6 calle£ by the Board of Directors within thirty days. Every such demand shall be accom- pame by the motions which are to be submitted to the Extraordinary General Meeting and Dy a statement of the arguments in support of them.

Article 15. . Every shareholder who has been inscribed in the Register of the Bank for not less than six months, and who owns at least ten shares, is entitled to speak and vote at the General Meeting, each share conferring upon the holder the right of one vote, subject to the proviso tnat no one shareholder is entitled to have more than one thousand votes in his own name. Proxy for other shareholders he may have the right to cast further votes not exceeding one thousand. b Article 16. nth EVi!ry shareholder is entitled to transfer his right of voting at a General Meeting to some tner shareholder, subject to the limitation of voting power mentioned in Article 15. The coard of Directors shall prescribe the form in which the right of voting shall be given, and the Me?tingmUSt ^ handed in to the Board of Management not less than seven days before the Article 17. th ' Soci®ties’ business corporations and other juridical persons, and wards, shall exercise right to vote at a General Meeting through their legal representatives. — 14 —

Article 18. The following persons shall not be entitled to exercise the rights of shareholders at General Meetings : (a) Bankrupts, during the period of the limitation of their rights ; (b) Persons who have not fulfilled their obligations towards the Bank or whosebills have been protested, as long as such protestation remains on the register ; (c) Persons whose civil or political rights or privileges have been curtailed or withdrawn as a result of conviction for a criminal offence, as long as such curtailment or withdrawal lasts. Article 19. Notices to attend a General Meeting shall be forwarded to the shareholders by registered letter to the address entered on the Register not later than twenty-one days previous to the meeting. The notice must specify : (а) The day and hour of the meeting ; (б) The place of the meeting ; (c) The agenda. In the case of the Ordinary General Meeting, the notice must be accompanied by a copy of the Report, and copies of the Report shall also be available at all offices of the Bank for delivery to shareholders if asked for. The notices shall likewise be published in the State Advertiser, and in newspapers decided by the Board of Directors, at least twenty-one days previous to the meeting.

Article 20. At General Meetings the chair shall be taken by the President of the Bank or, in his absence, by his Deputy (Article 37), or, in the absence also of the latter, by a member of the Management having a seat on the Board of Directors. The Chairman shall not vote unless equal votes have been cast, in which case he shall have the deciding vote. Article 21. The General Meeting shall have power to dispose of the following matters • (a) Approval of Annual Report ; (b) Appropriations to Reserve and other special funds; (c) Declaration of annual dividends ; (d) Election of members of Board of Directors (Article 25),and Auditors (Article 43), and the fixing of their fees and travelling expenses ; (e) Proposals to amend this Law, to be submitted to Parliament through the Government, except increase of capital (Article 9) ; (/) Motions on other matters proposed by the Boardof Directors orshareholders.

Article 22. All questions to be discussed at a General Meeting will be placed on the agenda by the Board of Directors. Motions to be proposed by shareholders must be communicated to the Board not later than thirty days before the General Meeting, accompanied by a statement of the arguments in support of them. Article 23. Resolutions shall be adopted by a simple majority of votes of the shareholders present or represented. Article 24. The resolutions of the General Meeting shall be entered in a special Minute-book by a member of the Management nominated for this purpose by the Chairman of the meeting, and shall be certified by the signatures of the Chairman of the General Meeting, of the official of the Bank keeping the Minutes, and of one shareholder nominated for this purpose by the General Meeting.

P art IV. — B oard of D ir ec to r s.

Article 25. The general conduct of the affairs of the Bank shall be entrusted to a Board of Directors, responsible to the General Meeting and consisting of the President, twro members of the Manage­ ment nominated by the President, and seven other members elected for three years by the General Meeting. — 15 —

The General Meeting shall elect members of the Board of Directors from persons repre­ senting the following interests : Industry, Commerce, Agriculture, Co-operative and Organised Workers. The respective candidates are proposed through the Board of Directors by bodies representing these interests Two of the elected Directors, to be chosen by lot not less than fourteen days before the Ordinary General Meeting, shall retire at each of the first two Ordinary General Meetings following that at which they were elected. Thereafter the Directors shall retire annually in accordance with their length of service. Retiring members may be re-nominated and re-elected.

Article 26.

All shareholders of the Bank, nominated as provided in Article 25, have the right to be elected as members of the Board of Directors, except the following persons, who shall not be eligible as Directors of the Eesti Pank : (1) Officials of the Government, of Municipalities or of other public bodies ; (2) Members of Parliament ; (3) Foreigners. No two persons who are associated together in business may at one and the same time be Directors of the Bank. Article 27.

Each of the bodies mentioned in Article 25 shall nominate not less than two candidates from among shareholders of the Bank. Article 28.

Every candidate nominated in accordance with Article 27 shall be put to the vote at the General Meeting personally and separately, and those receiving the highest number of votes of shareholders present or represented shall be taken as elected, provided all the interests mentioned in Article 25 are represented. For each elected Director a substitute shall be elected for the same period, in a similar manner and from the same branch.

Article 29. Any person whose status comes within the definition of Article 18 shall forthwith cease to hold office as a Director. Should an elected Director be absent for some length of time, the President may invite his substitute (Article 28) to act for him temporarily, and, if such a Director retires from the Board, his substitute shall fill his place for the remainder of his term of office.

Article 30. The Board of Directors may issue instructions for the guidance of the Board of Management and the Managers of Branches and Agencies as to the manner in which the business of the Bank shall be carried on. Article 31. Every elected Director, on taking office, must deposit with the Bank for the term of his office a certificate of fifty unencumbered Bank shares, registered in his own name.

Article 32. If any elected Director divulges secrets with regard to the Bank’s affairs or abuses his position for private or business purposes, or in any other way impairs the good repute of the Bank, a General Meeting of Shareholders shall have the right to remove him from the Board of Directors. Article 33.

The membership of elected Directors shalT be honorary. Their fees and any travelling expenses connected with the exercise of their duties as Directors shall be fixed by the General Meeting of Shareholders. Article 34.

The President and the members of the Boards of Directors and Management shall, on taking up office, give a written undertaking strictly and faithfully to observe the provisions of this Law, to further to the best of their ability the fulfilment of the duties which are incum­ bent on the Bank under Articles 2 and 3, to promote the welfare of the Bank in all respects, to devote themselves honourably and assiduously to the administration of the Bank’s business, to observe secrecy with regard to the Bank’s transactions, and to abstain from taking decisions upon questions with which they are in any way personally connected. — i6 —

Article 35.

The President, or in his absence his Deputy, shall summon meetings of the Board of Directors as often as may be required, but not less frequently than once a month, and shall take the chair at these meetings. A quorum shall be constituted when not less than six members are present. Decisions shall be adopted by a simple majority of votes of the members present. In case of an equality of votes the Chairman shall have a second or casting vote. The Minutes of the Directors’ meetings shall contain the names of those present and a record of any decisions taken. The Government Commissioner (if appointed) and any member of the Board of Directors present at the meeting have the right to demand that any differing opinion shall be recorded in the Minutes. The Minutes shall be signed by the Chairman of the meeting, not less than two members of the Board, and by the Government Commissioner, if present.

Article 36.

The Board of Directors shall be empowered to deal with the following matters : (a) Rates of discount and interest ; (b) General conditions and dimensions of the classes of business authorised in Article 51 ; (c) Eligibility of persons and firms for accommodation by way of discounts or advances, and fixing of the limits for the said accommodation ; (d) Acceptance of renewal bills of exchange for discount or re-discount by the Bank (Article 52 (6) ) ; (e) Continuance of advances for fixed periods, and periodical review of advances on current accounts ; (/) Appointment of Managers and the higher Bank employees on the proposal of the President, their dismissal, and the internal organisation and discipline of the Bank ; (g) Appointment of the members of the Discount Committees at the Head Office and Branches, and the fixing of their travelling expenses and fees (Article 41) ; (h) Issue of instructions for the Clearing-house conducted by the Bank ; (i) Arrangements for the general supervision and control of the Bank’s business ; (;') Questions connected with the purchase and acquisition of immovable property required for the business of the Bank, as also the temporary acquisition of similar property under Articles 53, and its sale ; (k) Writing down of the Bank’s assets ; (/) Appointment of foreign correspondents and the fixing of the maximum amount of the funds which may be held by them for account of the Bank, as well as the limit or credit facilities by way of discounts or loans to be granted to them ; (m) Questions concerning the form, text and denominations of the banknotes, the supply of notes and their withdrawal and cancellation, as well as the fixing of the terms under which mutilated notes may be exchanged. The denominations and text shall, however, be fixed in agreement with the Minister of Finance ; (n) Questions regarding the liquidation of the bankrupt enterprises and individuals indebted to the Bank ; (0) Questions regarding the opening and closing of Branches and Agencies of the Bank ; (p) Approval of Bank’s annual budget ; (q) All matters to be laid before the General Meeting.

P art V. — B oard of Managemf„n t .

Article 37.

The Board of Management shall consist of the President, his Deputy and of such number of Managers as may be required. The Board of Management is jointly responsible to the Board of Directors. The President of the Bank shall be appointed by the Government of the Republic for a period of five years, and at the expiration of this time he may be reappointed. His emolu­ ments and those of the Managers shall be fixed by the Board of Directors and paid by the Bank. The Managers of the Bank shall be appointed and dismissed by the Board of Directors (Article 36 (/) ). The two members of the Management with a seat on the Board of Directors shall be nominated by the President from among the Managers of the Bank, and one of them shall be designated by the President to act, in the President’s absence, as his Deputy. — 17 —

Article 38.

The Board of Management, in conformity with the general instructions issued by the Board of Directors, shall control the daily operations of the Bank, the work of which shall be divided into separate departments, each in charge of a Manager responsible for it. One such department shall have charge of the Branches of the Bank, and the Managers of Branches shall be subordinate to the head of this department. The Board of Management shall represent the Bank before third parties without special authorisation. The Board of Management shall meet as often as required, but not less than once a week. Three members shall form a quorum, and decisions shall be adopted by a majority of votes. In case of an equality of votes, the Chairman shall have a second or casting vote. If the Chair­ man (the President or his Deputy) disagree, with any resolution, he shall have the right to suspend its operation pending its reference to the Board of Directors for final decision.

Article 39. The Board of Management shall make a detailed report every month to the Board of Directors regarding the transactions and position of the Bank, and shall submit its opinion on all matters referred by it to the Board of Directors. The report shall, in particular, draw attention to discounts and advances (Article 36 (d) and (e) ).

P a rt VI. — S t a ff of t h e B a n k .

Article 40. The staff of the Bank, except the higher Bank employees mentioned in Article 36 (/), shall be appointed and dismissed by the Bank President, on the proposal of the Board of Management. The Bank’s staff shall be pledged to secrecy with regard to all transactions and business of the Bank. The duties and standing of the Bank’s staff shall be determined by special regulations issued by the Board of Directors. The staff of the Bank shall receive their salaries, pensions and all other regular remunera­ tion from the funds of the Bank, on terms laid down by the Board of Directors. The Bank's employees shall be responsible for the performance of their duties in like manner to Government employees, and they shall receive pensions paid from the funds of the Bank on a scale not less than those paid to Government employees. The Bank shall allot yearly a sum sufficient for the Pensions Fund for the Bank’s staff, according to regulations issued by the Board of Directors in agreement with the Minister of Finance.

P art VII — D isc o u n t Co m m it t e e s.

Article 41. The Discount Committees shall be appointed by the Board of Directors (Article 36 (^) ) and shall consist, for the Head Office and for Branches which are authorised to carry on inde­ pendent loan operations, of such number of persons (as the Board may decide1) who are familiar with the commercial, industrial and agricultural conditions of the locality, and whose civil or political rights have not been curtailed or withdrawn for the reasons mentioned in Article 18. A quorum shall be constituted when half the members are present. The members of the Discount Committees shall be appointed for two years, and they shall not be reappointed for the following year. Half the members of the Discount Committee, to be chosen by lot, shall retire after the expiration of one year, and subsequently according to length of service. Membership of the Committees shall be honorary. Their fees and any travelling expenses connected with the exercise of their duties shall be fixed by the Board of Directors. Near relatives, partners or agents of members of the Board of Directors shall not be eligible for appointment to a Discount Committee. Discount Committees are created for the purpose of scrutinising all bills presented for discount or as security for loans and advances. The scrutiny must be carried out with strict impartiality, and a written declaration shall be made on the point by each member on taking up his duties. The proceedings of the Committees shall be confidential, and decisions as to acceptance or rejection of bills shall be adopted by a simple majority of votes, the Chairman having a second or casting vote in cases of an equality of votes. No member of a Discount Committee may express an opinion or give a vote upon bills with which he is in any wav connected. While such bills are under scrutiny, he shall leave the meeting. Article 42. The Chairman of the Discount Committee at the Head Office shall be the Manager of the Discount Department, or, in his absence, a member of the Board of Management. In Branches, the Branch Manager shall take the chair at meetings of the Discount Committee. — i8 —

The Board of Management shall not be bound to discount bills accepted by the Discount Committee. In exceptional cases bills rejected by the Discount Committee m aybe discounted provided that in each case they are unanimously approved by the Board of Directors.

P art VIII. — A u d ito r s.

Article 43.

The General Meeting shall elect five qualified shareholders as Auditors to examine and report on the balance-sheet of the Bank, to be presented at the next Ordinary General Meeting, The Auditors are entitled to obtain any information or explanation they may require from the Board of Directors or the Board of Management, and to examine the Bank’s books and documents. The opinion formed by them as the result of their scrutiny shall be submitted in writing to the General Meeting.

P art IX. — R elations w it h th e St a t e .

Article 44.

All banking accounts of the State shall be kept at the Eesti Pank, including the accounts of State institutions, and no interest shall be paid by the Bank on such accounts, except that the Bank may pay on foreign balances, held for account of the State, interest at a rate lower by not less than one per cent per annum than the average rate earned by the Bank on such balances. The Eesti Pank shall receive and disburse Government money and keep accounts of it in accordance with the instructions of the competent State authorities, without remuneration for such services. The responsibilities of the Bank in this regard shall be limited to the exact execution of the instructions duly received. The Eesti Pank shall also be entrusted with the issue and management of all internal State debt. Article 45. The Minister of Finance may nominate a Government Commissioner, who shall have the right to attend all meetings of the Board of Directors, but not to vote. The Government Commissioner shall have the right to protest against any decision of the Board of Directors which he considers to be contrary to the laws. Any such objection shall have the force of a suspensive veto until the question in dispute has been decided by a com­ mission of three persons, to be named within seven days on a request to that effect being made either by the Board of Management or the Government Commissioner, and to report within seven days of nomination. The Commission shall be composed of one nominee of the Government, one nominee of the Board of Directors, and a chairman, who shall be chosen by agreement between the Government and the Bank, or who, failing such agreement, shall be the Chief Justice. Article 46. Neither at the Head Office nor in the Branches of the Bank shall representatives of the Government have access to the books of the Bank, except that, for the purposes of the preceding Article, the Government Commissioner may require the Management of the Bank to furnish whatever evidence may be necessary to enable him to reach a decision. The Eesti Pank shall not be subjected to any special regulations of the Government or of its subordinate authorities during the period for which it is endowed with the sole privilege of note issue, except those provided for in this Law.

P art X. — A ccounts and S ta tem en ts.

Article 47. The financial year of the Eesti Pank shall begin on January 1st and end on December 31st. At the end of the financial year the accounts of the Bank shall be submitted for audit to the Auditors elected by the Ordinary General Meeting under Article 43.

Article 48. The Bank shall publish a Return of its assets and liabilities on the 7th, 15th, 23rd and last day of each month, and not later than a week after these dates, in the form set out in the Annex to this Law. Article 49.

The Bank shall likewise publish annually in the State Advertiser, not later than one m onth before the date of the Ordinary General Meeting, its Balance-sheet and Profit and Loss A ccount as at December 31st of the preceding year. - ig —

Article 50.

The annual net profits of the Bank shall be appropriated (Article 21 (b) and (c) ) in the following manner : (1) Not less than 10 per cent to the Reserve Fund, unless appropriations be suspended under Article 12. (2) Such sum as may be required to pay a dividend of not more than 8 per cent on the shares of the Bank. Of the remainder, if any, one-half shall be appropriated to the Reserve Fund, unless appropriations have been suspended under Article 12. Of the other half, one moiety shall be paid to the Government and the other shall be available for additional dividend or other purposes at the discretion of the General Meeting. If appropriations to the Reserve Fund have been suspended, of the remainder referred to in this Article after meeting the dividend mentioned in (2) above, three-fourths shall be paid to the Government and one-fourth shall be available for additional dividend or other purposes at the discretion of the General Meeting.

P art X I. — B u sin ess of th e B a n k .

Article 51. The Eesti Pank may : (1) Make and issue banknotes ; (2) Buy and sell gold and silver, coin or bullion ; (3) Accept money on deposit or current account ; (4) Discount and negotiate internal bills of exchange, promissory notes or other commercial paper arising out of a bona-fide commercial transaction, bearing two or more good signatures and having a maturity not exceeding three months, agricultural bills not exceeding six months, and timber bills not exceeding nine months, provided that the two latter categories of bills do not exceed, in the aggregate, 40 per cent of the total bill holding ;

(5) Buy and sell, both at home and abroad, telegraphic transfers and cheques, and bills of exchange, drafts and Treasury bills of maturities not exceeding three months, payable abroad in a currency which is stabilised on gold ;

(6) Open accounts in foreign countries ;

(7) Open accounts for foreign banks ;

(8) Grant advances for fixed periods not exceeding six months, and advances on current account, against the following securities, subject to the limitations of Article 52 : (a) Gold coin and bullion ; (b) Stocks, bonds or bills of or guaranteed by the Estonian Government up to 80 per cent of their current market value ; (c) Commercial paper in Estonian or stable foreign currencies bearing two or more good signatures and having a maturity not exceeding three months ; (d) Agricultural and timber bills (as in (4) above), provided the amount advanced on them does not exceed 40 per cent of the total advances ; (e) One-name promissory notes secured by warehouse receipts against staple commodities fully insured, having broad and active markets, to an amount in each case not exceeding 60 per cent of the value of such commodities at market prices.

The rate of interest charged on all advances except those made under (11) below shall not be less than 1 y2 per cent above the Bank’s current discount rate for three months’ bills ;

(9) Accept the custody and management of moneys, securities and other articles of value ;

(10) Undertake on behalf of third parties the purchase and sale, collection and payment of securities, currencies and credit instruments at home and abroad ;

(11) Make temporary advances to the Government for expenditure authorised in the annual State budget, provided that the whole of the advances outstanding at any time does not exceed one-sixth of the estimated revenue of the year, and that all advances — 20 —

are repaid not later than at the end of the quarter following the close of the fiscal year in respect of which the advances were made. The rate of interest to be charged on these advances shall be agreed upon between the Bank and the Government ; (12) Invest an amount not exceeding the paid-up capital of the Bank in securities of or guaranteed by the Estonian Government, having a maturity not exceeding five years ; (13) Do all such things as may be incidental to the transaction of its legitimate business. Article 52. The Eesti Pank shall not : (1) Issue notes of a denomination less than five krones ; (2) Engage in trade or otherwise have a direct interest in any commercial, industrial or other undertaking ; (3) Become the possessor of fixed property other than the business premises of the Bank, except as provided for in Article 53 ; (4) Purchase its own shares on its own account ; (5) Pay interest on money placed on deposit or current account with the Bank by the Estonian Government or by other clients, except that interest may be paid to the Government on foreign balances as provided for in Article 44 ; (6) Allow the renewal of maturing bills of exchange discounted or rediscounted by the Bank, except in special circumstances and after a resolution passed by the Board of Directors (Article 36 (d) ), in which case one renewal may be permitted for a period not exceeding three months ; (7) Directly or indirectly make advances to the Governmentexcept in the manner and to the extent provided for in Article 51 (11) ; (8) Directly or indirectly make advances, in any circumstances whatever, to municipalities, local authorities, municipal institutions or other public bodies of the same nature ; (9) Make unsecured loans or advances ; (10) Make advances secured wholly or partially (except as provided for in Article 53) on mortgages of fixed property ; (n) Make advances on the security of agricultural produce or timber or merchan­ dise, except as provided for in Article 51 (8), (d) and (e) ; (12) Accept bills payable otherwise than on demand ; (13) Discount or accept from one person (except fromthe Government under Article 51 (11) ) as security, without a special resolution adopted unanimously by the Board, bills exceeding one-fifth of the paid-up capital of the Bank, taking into consideration the liabilities of the person to the Eesti Pank as a bill acceptor, drawer or endorser, but excluding advances made under Article 51 (8), (a), (6) and (e), the general limits of which shall be determined by the Board of Directors.

Article 53. If, after an advance has been granted, the value of the securities held against it diminishes, or for other reasons the debt is regarded as a doubtful one, the Bank may accept as additional security, if necessary, a mortgage on the immovable property of the debtor. In such case the Bank may also accept the shares of good companies and private banks, as well as any other security approved by the Board of Directors. Advances for which additional security of these types has been given must, if they are not already fixed-term loans, be converted into advances for fixed periods under Article 51 (8), and may not be renewed on date of maturity. Real property coming into the possession of the Bank under this Article shall be realised as speedily as possible by auction or private sale. No such property may be retained by the Bank for its own purposes unless it is absolutely necessary for carrying on the business of the Bank. Article 54. The Bank may refuse to grant an application for the opening of a current or deposit account, or may close an account already opened, without giving any reason for so doing.

Article 55. The Head Office of the Bank is authorised to issue sight drafts payable at Branches or Agencies, and vice versa ; and, if sanctioned by the Board of Directors, one Branch may issue sight drafts payable at another. No drafts drawn by the Bank on itself shall be made payable to bearer. — 21 —

Article 56.

If the value of a pledged security decreases, the debtor must provide other or additional security or repay the loan to a corresponding extent. If he fails to do so, or if the loan is not repaid when due, the Bank shall take immediate steps to recover the debt due to it, and may sell the whole or part of the security which it holds and place to the credit of the debtor the balance, if any, remaining when its claims for capital, interest, fees and costs, if any, have been fully satisfied. Should the amount realised by the sale of the security not suffice to satisfy the claims of the Bank, the latter is empowered to take action against the debtor. The Bank is under no obligation to sell the security, and, if it does not do so, its claims for capital, interest, fees and costs, if any, are not subject to prescription. Securities deposited with the Bank by private parties and institutions as security for loans are not subject to seizure and cannot be included in the estate of individuals or insti­ tutions declared insolvent, unless the loan has previously been repaid, together with all accrued interest, charges and fines.

Article 57.

The Bank shall at all times make public the minimum rate at which it is prepared to discount or re-discount bills.

P art XII. — Co ver for Cu r r e n t L ia b il it ie s .

Article 58.

The Bank shall maintain a Reserve of not less than 40 per cent of the amount of its notes in circulation and demand liabilities.

Article 59. The term “ Reserve” in the above Article shall include only : (a) Gold coin and bullion owned by the Bank, either in the custody of the Bank or deposited in other Central Banks and earmarked for the Eesti Pank’s account, or in any mint, or in transit to or from the Eesti Pank ; (b) Foreign exchange in the unrestricted ownership of the Eesti Pank, provided that in practice and in fact such exchange shall at all times be convertible on demand into exportable gold at the centre where the exchange is held. For the purposes of this Article, and subject always to the preceding paragraph (b), the term "foreign exchange” shall be taken to mean : (1) Net balances standing to the credit of the Eesti Pank at the Central Note- issuing Bank or other bank of a foreign country ; (2) Bills of exchange payable in a foreign currency, maturing within not more than three months, and bearing at least two good signatures ; (3) Treasury bills, Treasury certificates of indebtedness, or similar obligations of a foreign Government of a maturity not exceeding six months, less any liabilities in such foreign exchange.

Article 60.

At the request of the Bank, the Government may suspend the operation of Article 58, subject to the payment by the Bank to the Government of a progressive tax. The suspension may be granted for a period of not more than thirty days in the first instance, and may be renewed for further periods not exceeding fifteen days at a time. The tax shall be levied on the amount by which the note circulation and demand liabi­ lities of the Bank exceed the maximum sum which would be admissible under Article 58. The tax shall be calculated and paid daily at the following rates : 1 Yz per cent per annum above the published minimum current discount rate of the Eesti Pank for three months' bills if the Reserve, while less than 40 per cent, is not less than 35 per cent. 2 per cent per annum if the Reserve, while less than 35 per cent, is not less than 30 per cent. 3 per cent if the Reserve is less than 30 per cent.

Article 61.

Before applying to the Government for the suspension of Article 58, the Board of Directors shall raise the Eesti Pank rates for discounts and advances by not less than 1 per cent. P art X III. — N ote I ssu e .

Article 62. Before any new form of banknotes is issued, the Bank must publish a description of it in the State Advertiser. Article 63. In the event of the calling-in of individual notes or of any series of notes, the Board of Directors shall determine and publicly announce the period within which the said notes shall be presented for exchange. After the expiration of the period in question, the notes recalled shall cease to be legal tender except at the Eesti Pank. Ten years after the expiration of the latest date publicly so announced for the calling in of individual notes or series of notes, the Bank shall no longer be under obligation to cash or exchange them, and they may be written off the note circulation account.

Article 64. The Bank shall exchange its notes at its Head Office and Branches for notes of other denominations, as may be demanded by the person presenting them.

Article 65. The Bank shall be entitled to retain any forged or altered notes presented, giving a receipt in return. Article 66. If, after the date on which this Law comes into force, the Bank should fail in its obligation under Article 3 thereof, the privilege of note issue conferred on it by Article 1 of this Law | may be terminated by the Government.

P art XIV. — Specia l R ights of t h e B a n k .

Article 67. The provisions of the laws regarding joint-stock companies and banks shall not be applicable to the Eesti Pank. Article 68. The Bank shall be exempt from all taxes and trade licences levied by the State, in parti­ cular from the payment of any tax or duty on its note issue other than the tax provided for in Article 60. Article 69. The Bank is authorised to use a seal with the coat-of-arms of the Republic.

P art XV. — W in d in g -u p of t h e B a n k .

Article 70. In the event of the expiration of the note-issuing privilege of the Bank (Article 1), or the loss of the privilege (Article 66), the Government shall be entitled, with the sanction of Parliament, to take over the whole of the Bank’s business. In the event of the taking over of the Bank by the Government, the assets and liabilities of the Bank shall be valued by three experts. One of these shall be appointed by the Government, one by the Board of Directors, while the third shall be a person mutually agreed upon by the Government and the Board of Directors. The transfer of the Bank’s assets and liabilities (including the note issue) shall be made upon the basis of the valuation by the'experts, but the State shall assume unimpaired the full liability previously attaching to the Bank towards its active and pensioned staff in respect of all their rights. After having ascertained, as described above, the value of the assets and liabilities of the Bank, the nominal value of the shares shall be in the first place paid out to the shareholders, and any net excess in value shall be divided in the proportion of three-fourths to the Govern­ ment and one-fourth to the shareholders.

Article 71. Should the Bank’s note-issuing privilege be terminated without the State making use of the right of acquisition reserved to it by Article 70, an Extraordinary General Meeting, summoned for this purpose, shall be entitled to decide that the Bank shall be maintained for the purpose of carrying on a banking business exclusive of its privileges as a Bank of Issue. In such event the Bank shall frame and pass fresh statutes according to such legal provisions as may then be in force. — 23 —

P art XVI. — T em po r a ry A ppo in tm en t o f A d v ise r .

Article 72.

An Adviser to the Eesti Pank, nominated by the Council of the League of Nations, shall be appointed by the Government for a term of three years. b The Adviser shall reside at Tallinn, and his emoluments, which are payable by the Bank, shall be fixed by the Government in agreement with the Council of the League. On entering on his office, the Adviser will give an undertaking in writing to perform his ‘duties faithfully in the interests of the Bank, and in conformity with this Law, and to preserve secrecy with regard to the business of the Bank.

Article 73.

In exercising his functions the Adviser shall, as far as possible, work through, and in consultation with, the Board of Management. The President, Managers and all employees of the Bank, whether at the Head Office or at the Branches, shall render the Adviser all the assistance in their power, as well as furnish him with any information or documents which he may require.

Article 74.

The Adviser shall have the right to attend all meetings of the Board of Management, Board of Directors, and the General Meetings of the Bank, in a consultative capacity. In the event of his being of the opinion that a decision taken by the Board of Management is contrary to this Law, he may require that the question be submitted forthwith to a meeting of the Board of Directors. Should he be of the opinion that a decision taken by the Board of Directors or by a General Meeting is contrary to the provisions of this Law, he shall exercise a suspensive veto, and no action shall be taken on this decision until either an agreement has been reached between the Board of Directors and the Adviser on the question, or it has been decided by a third party to be mutually agreed upon, or, failing such agreement, by the Chief Justice.

Article 75.

Any alteration of this Law to be proposed at a General Meeting (Article 21 (e) ) shall require the specific approval of the Adviser, which must be recorded in the Minutes of the meeting.

P a rt XVII. — T r a n sito r y P r o v isio n s.

Article 76.

As long as the Government is the owner of all shares of the Bank, the functions of the General Meeting shall be exercised by the Government, but not longer than two years after this Law comes into force.

Article 77. During the time the Government has not disposed of its shares, the elected Directors shall deposit with the Bank, instead of shares (Article 31), 2,500 krones.

Article 78. The first Managers to be appointed under Article 37 shall be subject to the approval of the Government.

Article 79. As long as the Government owns all the shares, persons who are not shareholders may be elected members of the Board of Directors. For the first three years the members of the Board of Directors will be elected from candi­ dates nominated by the following bodies and in the following numbers :

Three from nominees of the Chamber of Commerce and Industry ; One from nominees of the Estonian Central Agricultural Society ; One from nominees of the Settlers’ League ; One from nominees of the Estonian Co-operative League ; One from representatives of the Workers, proposed by the Minister of Finance.

Each of the bodies mentioned in this Article, as likewise the Minister of Finance, shall noinmate three times as many candidates as have to be elected members of the Board of Directors by the General Meeting. — 24 —

Article 80.

During the time the shares are wholly owned by the Government, the function of auditors (Article 43) shall be exercised by the State Control. As long as the holding of shares by the Government is one-half or more, the General Meeting may change the number of auditors and nominate as auditors other persons than share­ holders of the Bank.

Article 81.

The Bank may apply 250 million marks from its reserve to increase its capital up to 500 million marks and issue to the Government a corresponding number of shares.

Article 82.

As from the date of the receipt by the Bank of £1 million provided for in the Protocol mentioned in Article 83, the Bank will hold on behalf of the Government an equivalent sum out of its loans to customers. As rapidly as possible, and in any case within a maximum period of one year from the above date, all documents and securities relative to the loans so transferred will be handed by the Bank to the Government. Similarly, there shall be transferred to the Government further loans due to the Bank to an amount estimated at approximately 1 milliard marks, equivalent to the balance remaining after setting off the Government note issue to be taken over by the Bank against the Govern­ ment long-term deposits at the Bank. After one year, the total loans of the Bank under Government guarantee (as per Report of the Financial Committee of December 1926, annexed to the Protocol) shall not exceed 1,500 million (present) marks and must be liquidated in agreement with the Government as early as possible.

P art XVIII. — D ate of Com ing of L aw in to F o rce.

Article 83.

This Law shall come into force on the day on which the Bank receives the sum of £1 million as contemplated by Article IV of the Protocol signed at Geneva on December 10th, 1926, providing for a foreign loan approved by the League of Nations.

Annex.

w e e k l y r e t u r n o f t h e e e s t i p a n k .

Assets. Liabilities.

Reserve : 1 . Capital : ...... Gold coin and gold bullion. . . 2. Reserve Fund ...... Net Foreign Exchange (Bank 3 ' Current Liabilities : Law, Article 5 9 ) ...... (a) Notes in circulation . . . 2. Subsidiary Estonian coin .... ( b) Sight Deposits and Current 3 - Home bills discounted : Accounts ...... Com m ercial...... Government .... Agricultural...... Bankers...... T im b e r...... O th er...... Loans and advances : Other Liabilities...... G overnm ent...... O ther...... Immovable Property and Equip­ ment ...... Other Assets...... Total Total Proportion of Reserve to Current Liabilities...... per cent.

(6) Law to terminate the Issue of Treasury and “ Change ” Notes.

1. As from the date of this Law the Treasury and “Change” note issues shall be ter­ minated, and no such notes shall be issued except as provided in paragraph 2. The Treasury notes in circulation of the denominations of 500 and 1,000 marks are transferred to the Eesti Pank and shall be regarded as equivalent to its own emission (Monetary Law, Article 2). Within a period of time to be fixed by the Eesti Pank, in consultation with the Minister of Finance, the Eesti Pank will withdraw these notes from circulation, replacing them with its own notes. — 25 —

2. Treasury notes of the denomination of 100 marks, and “Change” notes of the déno­ mination of 25 marks, as well as coins of the mark denominations, will be regarded for the Éme being as" subsidiary money and will remain in circulation on account of the Treasury, subject to the provisions of paragraph 7 of the Monetary Law of 1927, until replaced by coins Er other token paper money issued according to paragraphs 4 and 6 of the Monetary Law of ■92 7. 3. The 100-mark notes of the Eesti Pank, as well as the Treasury notes of 5, 3 and 1 larks and 50, 20, 10 and 5 penni, and the “Change” notes of 10 marks, shall be withdrawn E-om circulation by the Eesti Pank and the Treasury within a period of two years after this ta w comes into force, according to the provisions of the Eesti Pank Statutes Law, and para­ graph 10 of the Monetary Law of 1927, respectively. The treasury will pay for its notes of the penni denominationsonly in cases wThere the fcmount tendered is of the value of 1 markor more. 4. The obligations of the Government in respect to its note issue transferred to the Eesti Pank shall be liquidated as follows : (a) Five million krones will be paid to the Bank in gold ; (b) The balance will be paid by a corresponding cancellation of the Bank’s debt to the Government. 5. This Law will come into force on the same day as the Eesti Pank Statutes,passed fcy Parliament in 1927, come into force.

(c) Monetary Law of Estonia.

1. The monetary unit of Estonia shall be the “kroon” (krone), equivalent in value to 100/248 grammes of pure gold. The krone is divided into 100 cents. The mark circulating at present shall be equivalent to one cent of the value created by this Law.

2. The notes of the Eesti Pank shall be legal tender for any payment.

3. To keep the value of the krone on the level fixed in paragraph 1, the Eesti Pank will be under obligation to exchange its notes against foreign currency according to the provisions of Article 3 of the Eesti Pank Statutes Law. 4. The Treasury is authorised to mint and put into circulation subsidiary coins in the manner and to the extent prescribed in this Law. The subsidiary coins shall be minted from silver, copper, nickel or other metals or their alloys in denominations of 2 krones, 1 krone, and 50, 25, 10, 5, 3 and 1 cent.

5. The composition, weights, measurements and designs of all subsidiary coins will be fixed by the Government on the proposition of the Minister of Finance, and published in the State Advertiser. The 2 and 1 krone coins shall be minted of silver of a fineness of at least five hundred-thousandths.

6. Until the 2 krone, 1 krone, 50 cent and 25 cent coins are issued, the Treasury may issue token paper money of the same denominations, provided that the total nominal value of all subsidiary coins and of the token paper money referred to in this paragraph together, shall not exceed the totals prescribed in, and shall be subject to the provisions of paragraph 7. This paper money shall be withdrawn from circulation as soon as coins of corresponding denominations have been issued in the necessary quantities.

7. The nominal value of the subsidiary coins of the 2 and 1 krone denominations issued from the Treasury shall not exceed 6 krones per head of the population as ascertained by the last census, and that of the subsidiary coins of the cents denominations shall not exceed 3 krones per head of the population. The Treasury will issue subsidiary coins (paragraph 4) and equivalent token paper money (paragraph 6) only on the demand of the Eesti Pank, and only through the Bank, and the Bank has the right to return these coins and equivalent token paper money to the Treasury for any sum.

8. For the 2 and 1 krone silver coins the remedy in fineness shall not exceed ten per mille of pure silver, while in weight the remedy shall not exceed seven per mille. For coins of smaller denominations the authorised remedies wall be fixed by the Govern­ ment on the proposition of the Minister of Finance.

9 • Subsidiary coins (paragraph 4) will not be accepted by the Eesti Pank and its branches if the designs are undecipherable and the year of minting indistinguishable. For public circulation such coins lose their status as money as soon as the numbers indicating the value become illegible. The conditions of acceptability for token paper money (paragraph 6) shall be prescribed by the Minister of Finance. — 26 —■

lo . When coins or token paper money of any denominations have to be withdrawn froijH circulation and cancelled by order of the Minister of Finance, the public shall be given at least 1 one year in which to exchange them. During this period the exchange will be effected at alll the offices of the Eesti Pank, while, for a further period of one year, the Head Office of the El Eesti Pank will receive and exchange such coins and taken paper money. Thereafter theyH lose their value as money entirely and cannot be accepted in payment or for exchange. I

11. Coins which have been mutilated by filing, clipping or rubbing, or which have* been improperly reduced in weight by chemical means, or otherwise, lose their status as legal 1 tender for payment or exchange. For such coins the Eesti Pank will pay full nominal value ■ as long as they have not lost more than 5 per cent in weight and it is not proved that the person I presenting them has himself mutilated them maliciously.

12. The 1 and 2 krone coins and equivalent token paper money are legal tender fori sums not exceeding 50 krones, while, in the case of the 50 and 25 cent coins and equivalent ■ token paper money, the legal-tender limit is 10 krones, and in that of coins of smaller deno-H minations it is 2 krones. The above-mentioned legal-tender limits are not applicable to coins and equivalent token H paper money tendered to the Eesti Pank and its branches, which are obliged to accept every I kind of money for any sum, subject to the conditions laid down in paragraphs 9 and 11.

13. Coins w'hich have lost their status of legal tender for the purposes of the general ■ public (paragraphs 9 and 11) shall not be reissued by the Eesti Pank. The Treasury is obliged ■ to exchange them for new coins on the demand of the Bank.

14. After this Law has come into force, the present subdivision of the mark into penni I shall cease. Obligations of less than 1 mark are to be reckoned as 1 cent, while in the case of I obligations exceeding 1 mark, sums under 50 penni are cancelled and sums over 50 penni are a reckoned as 1 cent, except as provided for in Article 3, paragraph 2, of the Law to Terminate I the Issue of Treasury and “Change” Notes, of 1927. 15. Mortgages registered in the Land Register Records in marks or in gold krones are I payable in krones introduced by this Law (paragraph 1), the equivalent of 1 krone being thus I 1 gold krone and 100 marks. 16. This Law will come into force on the same date as the Eesti Pank Statutes, passed I by the Parliament in 1927, come into force.

(d) The Foreign Loan Law.

1. The Republican Government is authorised to raise a foreign loan on the conditions and of the amount laid down in the Protocol signed in Geneva on December ioth, 1926. 2 . The Republican Government is authorised to fix the conditions of the loan, price of issue, rate of interest, amortisation, annuity required for payment of interest and amortisation, as also the expenses of issue, negotiations and delivery, as approved by the person envisaged in Article I, paragraph 4, of the Protocol mentioned in paragraph 1 (above) and nominated by the Financial Committee of the League of Nations. 3. The Protocol referred to in paragraph 1 of this Law shall be published in the State Advertiser, together with the resolution of the Republican Government ratifying the same. 4. This Law comes into force as soon as passed.