See also:

• Foreign reserves as a confidence indicator
• Eesti Pank's foreign reserve management principles
• What causes changes in the amount of foreign reserves
• Investment portfolio
• Managing foreign reserves
• Risks in the placement of foreign exchange reserves
• Eesti Pank's financial statements

According to the law, Eesti Pank may issue additional Estonian kroons (base money) only being secured by foreign currency. According to the current practice the central bank issues Estonian kroons mainly in two forms.

Firstly: Upon issuing cash the central bank incurs a liability to the cash owners.
Secondly: Commercial banks buy so-called account money from Eesti Pank for foreign currencies, which remains on the balance sheet of Eesti Pank as a liability to commercial banks.

The primary goal of the foreign exchange reserve (FER) of Eesti Pank is to secure the stability of the Estonian kroon. When investing in the foreign exchange reserve the bank follows the conservative risk limits established to the assets backing the Estonian kroon, which prioritise maintaining the assets and their liquidity while earning investment income.

The foreign exchange reserve is divided into two: the liquidity buffer and the investment portfolio. The liquidity buffer accounts for the extremely liquid resources necessary for fulfilling the currency board function, which the central bank can use at any time for Estonian kroon and foreign currency transactions with domestic credit institutions. Assets of the other, larger component of the foreign exchange reserves are invested in international financial markets.