No. 8




The Bank of Estonia and the financial policy of the state

  • Mart Sõrg

    Chairman of the Board of Eesti Pank, director of the University of Tartu monetary and fiscal institute

Central banks are involved in monetary policy on a daily basis, regulating the demand and supply of money and maintaining reserves. Thus legislation places the main responsibility for successful monetary policy on the shoulders of the Bank of Estonia.

Article 4 of the Estonian Central Bank Act states that the Bank of Estonia takes part in national economic policy by implementing an independent monetary, credit and banking policy. The same law compels the Bank to advise the Government of the Republic in matters pertaining to monetary, credit and financial policy. The government is expected not to take any weighty politico-economic decisions without eliciting the position of the Bank. This relationship is intended to help the various fields of politico-economic policy to be in harmony with one ohter.

In the 14 September, 2003, referendum, a majority of Estonian citizens voted to join the European Union, a step that will allow Estonia to enter the European Monetary Union (EMU) as well. We believe that it will allow the Bank of Estonia to fulfill its and the currency committee’s principles is to be adhered until accession to the EMU and the European system.

Accession to EMU is an essential step for Estonia’s economy as it will ensure a continued conducive investment climate and strengthen the foundation for continued long-term balanced economic growth.

Rapid EMU accession is inherent in foreign investors and credit rating agencies’ evaluations of Estonia’s economy. Interest margins and credit ratings are on a comparable level with current member states. For reliability to stay at a high level, union with EMU must be as rapid as possible. Thus EMU can be seen as the biggest challenge for Estonia’s economy in the coming years.

If all necessary preconditions for accession are to be met, an economic policy aimed at harmonious development will have to continue, along with close cooperation between all state institutions during the entire pre-accession periood.

Full article in Estonian