Strategic Development Plan of Eesti Pank
2011-2013

    General Roles and Responsibilities of Eesti Pank

    The Objective of Eesti Pank

    The Vision of Eesti Pank

    The Organisational Values of Eesti Pank

    The Basic Tasks of Eesti Pank

1. Participating in the formation and implementation of monetary policy in the euro area

2. Participating in maintaining financial stability through the formation of financial sector policy and the development of the financial sector safety net

3. Operating and developing reliable and well-functioning settlement systems

4. Regulating cash circulation in Estonia and participating in the regulation of cash circulation in the euro area

5. Maintaining and enhancing Estonia's foreign reserves and other financial assets under the management of Eesti Pank

6. Preparing financial sector statistics and the Estonian balance of payments

7. Supporting stable and sustainable economic development in Estonia, advising the government and cooperating with other central banks and international institutions

    Organisation Chart of Eesti Pank

    Abbreviations

General Roles and Responsibilities of Eesti Pank

Eesti Pank is the legal successor of the Estonian central bank established in 1919. After the end of the Soviet occupation, Eesti Pank resumed operation on 1 January 1990. Eesti Pank has been a member of the European System of Central Banks (ESCB) since 2004, when the Republic of Estonia joined the European Union. The ESCB comprises the European Central Bank (ECB) and the national central banks of all the European Union Member States. Estonia joined the euro area in 2011 and adopted the euro as its circulation currency, and in so doing, Eesti Pank became the eighteenth member of the Eurosystem. The Eurosystem comprises the ECB and the national central banks of the countries that have adopted the euro.

The primary objective of the Eurosystem is to maintain price stability in the euro area. Eesti Pank contributes to the functioning of the euro-area monetary policy transmission mechanism in Estonia.

As a Eurosystem member, Eesti Pank has been co-responsible since 1 January 2011 for meeting the primary objective of the Eurosystem. To this end and in accordance with the Statutes of the ESCB and of the ECB, the Treaty on the Functioning of the European Union, the Eesti Pank Act and legal acts of the ECB, Eesti Pank participates in setting and implementing the single monetary policy of the euro area.

Eesti Pank and its Board members act independently and are not allowed to take orders or instructions from the government or other interest groups outside the bank in carrying out their statutory duties.

Eesti Pank does its work as a member of the ESCB as efficiently as possible, and the functioning of the organisation is constantly being improved for this purpose. The development of a cost-effective and sustainable organisation with competent and motivated staff is achieved using the best management practices appropriate to the central bank.

The Objective of Eesti Pank

The objective of Eesti Pank is to maintain price stability and, by participating in the single monetary policy of the Eurosystem, to support sustainable non-inflationary growth in the countries of the euro area. In line with the Treaty on the Functioning of the European Union, Eesti Pank also contributes to the achievement of other economic policy goals.

The Vision of Eesti Pank

Eesti Pank is an efficient modern central bank that actively contributes to the economic development of both the Eurosystem and Estonia.

The Organisational Values of Eesti Pank

The employees of Eesti Pank apply the following values in their interaction with interested parties and partners and in the bank:

Competence

  We are informed and follow long-term objectives in our activity

  Our messages are clear and comprehensible

  Our employees have the best professional training and up-to-date knowledge

  We appreciate independent learning and self-improvement and we learn from the best

  The exchange of skills and knowledge between employees is well organised

  We commit to the primary objectives and we act prudently

Orientation to cooperation

  We are flexible and innovative

  We seek the necessary expert knowledge and contribute where it is important

  We act in good faith and trust each other

  We act as a team

Credibility

  We are loyal to our organisation and dedicated to our work

  Our action tallies with what we say

  We are outspoken and self-critical

  We are consistent

Consideration

  We keep each other informed about our work and give feedback

  We acknowledge good work

  We respect each other, we are accommodating and helpful

The Basic Tasks of Eesti Pank

In order to fulfil the objective of Eesti Pank, the central bank carries out the following basic tasks that are in line with the Eesti Pank Act and the tasks of the ESCB and the Eurosystem.

1. Participation in the formulation and implementation of monetary policy for the euro area.
2. Participation in ensuring financial stability through the formulation of financial policy and the development of the financial-sector safety net.
3. Operation and development of reliable and well-functioning payment and settlement systems.
4. Management of cash circulation in Estonia and participation in the management of euro-area cash circulation.
5. Maintenance and increase of Estonia's foreign reserves and other financial assets managed by Eesti Pank.
6. Compilation of financial-sector statistics and Estonia's balance of payments.
7. Contribution to stable and sustainable economic development in Estonia through consultation with the government and cooperation with other central banks and international institutions.

1.  Participating in the formation and implementation of monetary policy in the euro area

The Eurosystem is responsible for the formation and implementation of monetary policy in the euro area. The biggest change that accession to the euro area brought for Estonia was that while the earlier currency board system used a fixed exchange rate to maintain price stability in Estonia, Eesti Pank now participates in setting a single monetary policy for the entire euro area, as well as in preparing the analytical materials that shape the monetary policy decisions. The interests of the entire euro area are also kept in mind when decisions are taken in the Governing Council of the ECB, where the Governor of Eesti Pank is a member. The primary objective of the monetary policy in the Eurosystem is to maintain price stability in the euro area. This objective has been stipulated in Article 127 (1) of the Treaty on the Functioning of the European Union. As approved by the Governing Council of the ECB, price stability is defined as a yearly increase of the Harmonised Consumer Price Index of the Euro Currency Area below but close to 2% over the medium term.

In designing the monetary policy framework and establishing the monetary policy objectives, the ECB cooperates closely with the national central banks (NCBs) of the euro area. The cooperation takes the form of meetings and teleconferences of numerous committees and task forces, where all major decisions are discussed before they are taken. The euro area monetary policy framework is comprised of open market operations, the minimum reserve system and the marginal lending/deposit facilities. For example, in the global financial crisis, the organisational structure of auctions has been changed and a temporary government debt purchase programme has been introduced in order to ensure smooth monetary policy within the framework. The objective for the next few years is to resume the standard monetary policy framework.

As in other areas, monetary policy in the euro area follows the principle of centralised decision-making and decentralised implementation. This means that the Governing Council of the ECB is responsible for all monetary policy issues, for enforcing the regulations required for Eurosystem tasks to be executed, and for decision-making. For example, the amount of regular refinancing operations, the total amount of short-term loans granted against collateral to the credit institutions of the Eurosystem and other important matters are determined, where necessary, by the Governing Council of the ECB, whereas monetary policy transactions are intermediated by the NCBs. To all intents and purposes, the NCB, and not the ECB, serves as the counterparty to loan transactions. The minimum reserves of credit institutions are held on accounts opened with the NCBs of the euro area, with the corresponding NCB being responsible for the related accounting.

By the beginning of 2011, Eesti Pank had prepared and tested the procedure and documentation required for participation in the Eurosystem monetary policy operations. The differences from the currency board system entailed major changes for both Eesti Pank and the commercial banks. New instruments were introduced for commercial banks to receive liquidity from the central bank, with the entire legal framework changed accordingly.

The strategies and activities planned for meeting the primary objective:

STRATEGIES	ACTIVITIES
Providing the analytical background materials and information required for adopting the monetary policy decisions of the euro area	Improving the monitoring and analysis of the euro area economy and financial markets       Improving the data management infrastructure required for the analysis of the euro area       Enhancing the competence of Eesti Pank's staff in the analysis of the euro area economy and preparation of monetary policy decisions       Improving the procedure for participation in the euro area economic forecast, perfecting the models used, and bringing the Estonian forecast cycle into line with the Eurosystem's cycle       Participating in the ESCB's Macroprudential Research and Household Finances and Consumption surveys
Preparing for the implementation of the Governing Council's monetary policy decisions in the Estonian market	Conducting the Eurosystem's monetary policy operations with the suitable Estonian counterparties       Improving the guidelines and procedure for the monetary policy operations between Eesti Pank and the commercial banks, if necessary       Participating in the development of the collateral management system of the correspondent central banking model (CCBM 2)
Ensuring a functioning monetary policy framework in the Eurosystem	Participating in the development of the operational framework for the Eurosystem's monetary policy in connection with the termination of extraordinary measures for regulating the financial crisis and the need for post-crisis amendments within the standard framework
Main indicators:       The annual change in the consumer price index       The relative accuracy of the forecasts       The efficiency and relevance of the monetary policy and economic policy positions       The timeliness and correctness of monetary policy operations       Articles published in research journals, presentations at international conferences, working groups, open seminars

2.  Participating in maintaining financial stability through the formation of financial sector policy and the development of the financial sector safety net

Monitoring of the financial sector plays an important role in identifying the risks endangering the functioning of the financial system. Eesti Pank regularly analyses the functioning of the financial system and issues financial stability assessments. Market participants are consulted as well as domestic and foreign partners to provide a high-quality and reliable assessment. The methods of analysis are continually improved, with research being conducted into financial stability macro-level correlations.

The financial sector policy goals pursued by Eesti Pank in developing measures for maintaining financial stability and the legal framework are based on the conclusions of the bank's own financial stability assessment, and also on the legal framework of the single EU financial market. The legal framework is developed in cooperation with the Financial Supervision Authority and the Ministry of Finance. Eesti Pank issues decrees which serve to regulate the activities of the banking sector. Considering the enhanced integration of the financial sector with the European banking groups, we need to support measures that strengthen the efficient functioning of the common market within the European Union.

Alongside the prevention of financial crises, we need to prepare for crisis management. In a crisis, the primary task of Eesti Pank is to ensure the sufficient liquidity of the banking system. In cooperation with the Guarantee Fund, the Ministry of Finance and the Financial Supervision Authority, Eesti Pank serves to strengthen the financial sector safety measures. In pursuit of cross-border integration, we must lay emphasis on close cooperation with the central banks of the Nordic and Baltic countries.

The strategies and activities planned for meeting the primary objective:

STRATEGIES	ACTIVITIES
Increasing monitoring of the financial sector	Continually improving the methods of analysis, and conducting stress tests and research into financial stability macro-level correlations       Consulting market participants and domestic and foreign partners to provide a high-quality and reliable assessment       Participating in the analysis of financial stability in the euro area and in the preparation of the financial stability assessment       Implementing the organisation of work required for participation in the analysis of the European Systemic Risk Board (ESRB) and for issuing warnings and recommendations regarding systemic risks
Developing financial stability measures	Participating in the development and implementation of the new crisis prevention and management measures for the EU financial sector in cooperation with the Ministry of Finance and the Financial Supervision Authority       Setting the financial sector policy on the basis of the conclusions of the central bank's own financial stability assessment and the legal framework of the single EU financial market
Enhancing readiness for financial crisis management	Testing and improving the ability to provide Emergency Liquidity Assistance (ELA)       Enhancing cooperation with the central banks of the Nordic and Baltic countries
Main indicators:       The quality of the analysis and the assessment which is based on the analysis       The efficiency and relevance of financial sector policy       The results of the financial crisis management exercises       The compliance of the financial sector frameworks and regulations with good practice and local needs

3.  Operating and developing reliable and well-functioning settlement systems

The central bank is charged with the task of ensuring the safety and functioning of the system in a way which would satisfy the needs of system participants with minimum risk exposure and at reasonable cost. Eesti Pank operates two interbank settlement systems: TARGET2-Eesti, the component system of the Trans-European Automated Real-time Gross Settlement Express Transfer System, and ESTA, the settlement system for retail payments.

Eesti Pank participates in the promotion of efficient and stable payment and settlement systems, and in supervision of the settlement systems at both national and EU level. In the course of its supervision of the settlement systems, Eesti Pank assesses the compliance of the systems with the international and central bank requirements and makes recommendations for enhancing system efficiency or security, where necessary.

The strategies and activities planned for meeting the primary objective:

STRATEGIES	ACTIVITIES
Maintaining the reliability and functioning of the settlement systems	Conducting settlements between credit institutions in TARGET2-Eesti and ESTA with an acceptable risk exposure and following the principle of the self-financing of settlement systems
Promotion of the settlement systems	Developing the TARGET2-Eesti and ESTA settlement systems operated by Eesti Pank in accordance with the needs of the Estonian market and agreements with the Eurosystem       Participating in ensuring the compliance of Estonian retail payments with the requirements of the Single Euro Payments Area (SEPA)       Participating in the development of the Eurosystem's central securities settlement platform as an owner and developer of the financial sector infrastructures       Participating in the formation and implementation of the legal framework for settlement systems in cooperation with Estonian and EU partners
Supervising the settlement system and developing the system framework	Supervising the payment and settlement systems in Estonia and participating in the supervision of the payment and settlement systems of other Eurosystem members       Developing the supervision of the settlement system framework in accordance with international standards and practice       Improving the payment and settlement system supervision framework       Enhancing cooperation in the supervision of securities settlements: conclusion of a cooperation agreement with the Financial Supervision Authority and implementation of the agreed principles and activities       Enhancing cooperation in the supervision of securities settlements: conclusion of a cooperation agreement with the Financial Supervision Authority and implementation of the agreed principles and activities
Main indicators:       The level of availability of the payment and settlement system

4.  Regulating cash circulation in Estonia and participating in the regulation of cash circulation in the euro area

Euro banknotes and coins are the legal tender in the euro area. The Eurosystem is charged with ensuring a smooth supply of banknotes and maintaining the public trust in the euro. The security of euro banknotes is ensured through research and the development of the security elements, and through the prevention and monitoring of counterfeiting. In handling banknotes, the central banks, credit institutions and other cash handlers, such as cash-in-transit companies, must adhere to common quality standards and authenticity verification requirements.

Unlike the design of euro banknotes, the design of euro coins lies within the competence of the Member States, and not the ECB. If a Member State wishes to release into circulation a coin bearing a new image, the Member State must first inform the European Commission and other EU Member States of this. The Commission will check the compliance of the new design with the established guidelines and publish the corresponding notice on its website. The rules and regulations for the circulation of cash for the euro area are set by the Governing Council of the ECB.

The daily management of cash circulation is the responsibility of the Eurosystem's central banks, and euro cash is launched into circulation by the NCBs, not the ECB. Therefore, the euro cash in circulation is also the responsibility of the NCBs, rather than the ECB, and is recorded on their balance sheets.

The strategies and activities planned for meeting the primary objective:

STRATEGIES	ACTIVITIES
Serving the Republic of Estonia's demand for euro banknotes and coins, and maintaining the availability of the currency required for circulation	Analysing Eesti Pank's need for new euro banknotes and coins       Participating in the Joint European Tender project for the production of euro banknotes       Supplying the euro coins in circulation as required, and participating in the joint project for the €2 commemorative coin       Reviewing the terms and conditions for the return of euro coins to Eesti Pank and the procedure for handling euro coins       Safeguarding and maintaining the cash stocks
Implementing the unified euro-area requirements in the regulation of cash circulation in Estonia	Implementing the requirements for authenticity and fitness checking and the recirculation of euro banknotes and its supervision under the decision of the ECB       Ensuring the functioning of and continual monitoring of Eesti Pank's banknote sorters under the ECB's minimum sorting standards for used banknotes       Developing the cash accounting system under the requirements arising from the amendment of the Currency Information System 2 (CIS 2) (implementing the half-yearly and daily reports)
Main indicators:       Cash stocks       Customer satisfaction       The swiftness of the expert analysis of cash       The swiftness of services rendered to numismatics and bonistics

5.  Maintaining and enhancing Estonia's foreign reserves and other financial assets under the management of Eesti Pank

The foreign reserves and other financial assets under the management of Eesti Pank serve to support the Eurosystem's ability to exercise efficient monetary policy and ensure Eesti Pank's financial ability to fulfil its tasks. Eesti Pank thus makes investments under the principle of conservatism, focusing on maintaining the assets and ensuring sufficient liquidity, while also focusing on yield.

A comprehensive analysis of the compliance of the investment strategy with Eurosystem experience will be conducted in 2011, and changes will be gradually introduced where necessary.

In cooperation with Suomen Pankki, Eesti Pank also manages a portion of the ECB's foreign reserves. One of the primary goals in the management of the Eurosystem currency reserve is to ensure that the ECB has sufficient resources for conducting currency operations. Management of the ECB's currency reserve by the NCBs is decentralised, governed by the common restrictions and goals of the Eurosystem.

The strategies and activities planned for meeting the primary objective:

STRATEGIES	ACTIVITIES
Generating optimum revenue from the foreign reserves and financial assets under the management of Eesti Pank	Conservatively investing the financial assets in accordance with the need to maintain assets and ensure sufficient liquidity       Generating sufficient revenue to cover the expenses of Eesti Pank, while keeping optimum interest, currency and credit risk       Participating in the management of the foreign reserves of the European Central Bank       Reviewing the investment objectives and framework in accordance with the adoption of the euro, and amending the investment strategy accordingly
Main indicators:       The amount of additional revenue generated       The compliance of the benchmark portfolio with the requirements       Risk exposure       The compliance with the established risk limits       Timely and appropriately settled transactions

6.  Preparing financial sector statistics and the Estonian balance of payments

To serve its main functions, the Eurosystem needs detailed information on the euro area economy and financial system. The division of tasks in the collection, processing, analysis and publication of data and in the selection of methods between the ECB and the NCBs is similar to the division of tasks in the monetary policy area. The Governing Council of the ECB approves the standardised statistical requirements and the due dates for the transmission of statistical data, previously consulting with the NCBs about this. The NCBs are responsible for the daily collection and processing of statistical data, and for preparing the output statistics.

The accession to the euro area caused quite a few changes in the banking statistics and other financial statistics. In addition to changes in the structure of the data, data must now be collected in several new areas, with the frequency of data transmission increased, and deadlines shortened. The changes also affected statistics on monetary financial institutions and investment funds, with the addition of statistics on securities, insurers and pension funds.

The accession to the euro area triggered detailed additional data transmission requirements for balance of payments statistics for both the entries and the geographical division. The monthly balance of payments became much more specific, especially for portfolio investments. In addition to security-by-security accounting, euro area members are obliged to submit portfolio investment data by currency and issuer sector.

The additional requirements for euro area countries for the transmission of general economic statistics to the European Central Bank now include corporate demographics, assets (including the assets of households), wage agreements and commercial real estate prices.

The strategies and activities planned for meeting the primary objective:

STRATEGIES	ACTIVITIES
Transition to the use of revised international standards on statistics (Balance of Payments Manual 6th Edition, System of National Accounts 2008, European Sector Accounts 2010)	Developing the methods for preparing external sector and financial sector accounts in accordance with the new standards       Improving the data collection methods and the forms of statistical reporting       Modifying the statistical applications used for the preparation of statistics and improving the data processing procedure       Explaining the amendments to the users of the statistics and assisting the users in their interpretation of the revisions
Preparing for the fulfilment of the monetary union's new data requirements and improving the current data transmission procedure	Participating in ascertaining the need for data       Improving the reporting forms and establishing new reporting forms, where necessary       Preparing output statistics in accordance with the new legal acts, and the procedure for their publication
Improving the output statistics intended for publication, and enhancing their user-friendliness	Enhancing the quality of statistics provided on the external website and the availability of metadata       Developing and implementing a new, more flexible application for publishing data       Improving the standard data reviews and quarterly reviews
Main indicators:       The reliability and representativeness of statistics       The compliance with the requirements       Adherence to the due dates for publication of statistics       The availability of statistics intended for in-house users of Eesti Pank       The availability of output statistics intended for publication

7.  Supporting stable and sustainable economic development in Estonia, advising the government and cooperating with other central banks and international institutions

Among other things, the stability of the Estonian monetary and financial system depends on the adherence by economic policy-makers and the economic participants of other countries to the restrictions established to make the Eurosystem function, and to the principles of long-term sustainability. Even though supporting stable and sustainable economic development is mainly the task of the Government of the Republic, Eesti Pank participates in the process, within its competence, through national cooperation and by advising the government and the general public, paying special attention to explaining and repeating the principles of the Eurosystem.

We serve to make sure that the Executive Board of the bank would have the information needed for representing the state and the central bank at an international level. We also monitor and regularly analyse international information in the areas concerning the activities of the central bank so that we can formulate the bank's positions in the European System of Central Banks and in a wider international arena.

International and public relations are crucial to the activities of Eesti Pank, as the Estonian economy is closely interrelated with the outside world. Eesti Pank presents the country's economic development and economic policy in Estonia, within the euro area, and elsewhere in the world.

The strategies and activities planned for meeting the primary objective:

STRATEGIES	ACTIVITIES
Cooperating with other central banks and international institutions	Communicating the relevant information on Estonia's economic policy and economic developments in the euro area, the EU and international organisations, including the International Monetary Fund       Entering into cooperation agreements and alliances with other institutions to influence international decisions where necessary       Presenting Estonian economic development in Estonia, within the euro area, and elsewhere in the world
National cooperation and advising of the government	Preparing policy recommendations to influence domestic economic and political decisions       Organising meetings with the representatives of government agencies and constitutional institutions       Cooperating with the Ministry of Finance in various matters related to economic development       Bringing the Estonian economic analysis and economic and political advisory functions into line with the changes triggered by the accession to the Eurosystem
Main indicators:       The efficiency and relevance of economic and political commentaries       The relevance and availability of the Eesti Pank website       Timely publications by Eesti Pank       The efficiency and relevance of the Eesti Pank strategy in international institutions and bilateral/multilateral relations       The reliability of the analysis of the activities of international organisations, and the related assessments

Organisation Chart of Eesti Pank on 19 September 2011

Abbreviations

CCBM 2 - common platform for the Correspondent Central Bank Model
CIS 2 - Currency Information System 2
EKP - European Central Bank
EKPS - European System of Central Banks
ELA - Emergency Liquidity Assistance
ESRB - European Systemic Risks Board