Eesti Pank Bank of Estonia Eesti Pank Annual Report 2007 2008 © Eesti Pank, 2008 Address Estonia pst 13 15095 Tallinn Estonia Phone +372 6680 719 Fax +372 6680 836 E-mail [email protected] Web site www.bankofestonia.info Subscriptions for publications of Eesti Pank Phone: +372 6680 998 Fax: +372 6680 954 E-mail: [email protected] ISSN 1406-1414 Executive editor: Kadri Põdra Design: Vincent OÜ Layout: Urmas Raidma CONTENTS MAIN feaTURes AND FUNCTIONS OF EesTI PANK .................................................................. 9 FORewORD BY GOVERNOR OF EesTI PANK .............................................................................12 ACCOUNTABILITY ..........................................................................................................................16 Legal framework for accountability and compulsory publications of the central bank ...................16 Accountability vis-à-vis the Riigikogu ............................................................................................17 Regular reporting on economic policy views and publication of economic data ............................17 STRATegIC OBJECTIVes FOR peRFORMING THE maIN FUNCTIONS OF EesTI PANK .... 20 FIFTEEN YEARS OF THE ESTONIAN KROON .............................................................................24 1992–1994: Monetary reform and reorganisation of the banking system .................................. 25 1995–1998: Development and stabilisation of the banking sector ............................................ 28 1999–2004: Closer integration with Europe .............................................................................. 30 2004–2006: On the way towards the Economic and Monetary Union as an EU member state 33 MAJOR ACTIVITIes AND ACHIEVemeNTS OF EesTI PANK IN 2007 MONETARY POLICY ........................................................................................................................ 38 Ensuring the smooth functioning of Estonia’s monetary policy framework .................................... 38 Main characteristics of Estonia’s monetary system ................................................................... 38 Monetary policy in 2007 ........................................................................................................... 39 Preparations for bringing the Estonian monetary system into conformity with the requirements for joining the euro area ......................................................................................41 Economic analysis, forecast and research as the basis for monetary and financial policy-making process .................................................................................................... 42 Monitoring ................................................................................................................................ 42 Economic reviews ..................................................................................................................... 42 Forecast ................................................................................................................................... 42 Research .................................................................................................................................. 43 Reserve management ................................................................................................................... 44 Structure of foreign exchange reserves .................................................................................... 44 Investment process .................................................................................................................. 44 Results and determinants of investment in 2007 ...................................................................... 45 Changes in the benchmark portfolio in 2007 ............................................................................ 45 Asset management services provided to the public sector ....................................................... 46 ENSURING FINANCIAL STABILITY ...................................................................................................47 Financial sector analysis and financial stability assessment ...................................................... 48 EU financial sector policy .......................................................................................................... 48 Safety net ................................................................................................................................. 49 Banking legislation .................................................................................................................... 50 Payment and settlement systems oversight .............................................................................. 50 3 Eesti Pank Annual Report 2007 DEVELOPMENTS IN STATISTICS ..................................................................................................... 52 Banking and other financial statistics ........................................................................................ 52 Balance of payments statistics ................................................................................................. 53 General economic statistics...................................................................................................... 55 CURRENCY CIRCULATION .............................................................................................................. 56 Development of the payment and settlement environment ........................................................... 56 Meeting the cash demand ............................................................................................................ 58 Banknotes and coins in circulation and their structure .............................................................. 58 Expert analysis and handling of cash ....................................................................................... 59 Preparation of new banknotes and coins .................................................................................. 59 ORGANISATION AND COOPERATION ..............................................................................................61 International cooperation ................................................................................................................61 Regular cooperation with European Union institutions .............................................................. 62 European Central Bank ........................................................................................................ 62 Council of the European Union ............................................................................................ 63 European Commission ......................................................................................................... 65 Role of Eesti Pank after the adoption of the euro ...................................................................... 65 Cooperation with the International Monetary Fund ................................................................... 65 Cooperation with rating agencies ............................................................................................. 67 Cooperation within Estonia ........................................................................................................... 68 Cooperation with the Office of the President of the Republic ................................................... 68 Cooperation with the Ministry of Finance .................................................................................. 68 Cooperation with the Financial Supervision Authority ............................................................... 69 Cooperation with the Estonian Banking Association and Estonian banks ................................. 69 Public relations and communication .............................................................................................. 69 Principles of informing the public .............................................................................................. 69 Media relations and public appearances ..................................................................................70 Museum of Eesti Pank ...................................................................................................................71 Governance, organisation and personnel policy .............................................................................72 Eesti Pank’s governing and decision-making bodies .................................................................72 Supervisory Board of Eesti Pank ...........................................................................................72 Governor of Eesti Pank .........................................................................................................72 Executive Board of Eesti Pank ..............................................................................................72 Monetary Policy Committee ..................................................................................................74 Cooperation with the Financial Supervision Authority ................................................................74 Development of the management system and work organisation of Eesti Pank in 2007 ................74 Definition of organisational values and value-based management .............................................74 Regular study of management quality and appraisal interviews