The assets of the central bank support the reliability of the euro

The central bank needs assets and savings in order to remain independent in making monetary policy and to maintain trust in the value of the currency issues (the euro).

Eesti Pank, like other national central banks in the euro area, must be independent in making decisions related to monetary policy. For these central banks, such policy means the joint task of maintaining inflation in the euro area at a moderate level, i.e. ensuring price stability. Why is price stability the function of a central bank and not of the government? The historical experience of various states has shown that governments sometimes have a political interest in accelerating inflation, because it enables economic growth to be increased in a short period of time or makes it possible to grow out of debt. Therefore, central banks must be independent from governments. The central bank gains its independence from its own wallet or assets belonging to the central bank. These assets are invested and the central banks can use the resulting income to finance its operations.

The independence and assets of the central bank are also needed to maintain trust in the currency it issues. The central banks in the euro area provide people and companies with confidence – knowing that each euro issued by the central bank has collateral. Thus, money has value and is not just a blank piece of paper.

The assets of the central bank are also important in guaranteeing trust, because by implementing monetary policy (e.g. granting loans to banks against collateral and making joint bond purchases with central banks in the euro area) central banks may lose money. Although central banks thoroughly inspect their transactions, it can sometimes happen that a commercial bank that has raised a loan encounters difficulties and the value of loan collateral falls to the extent that the central bank does not get the full amount of the loan back.

In summary, the central bank needs assets and savings for three reasons:

  • to remain independent in making monetary policy;
  • to ensure trust in the value of the currency issued (the euro); and
  • to cover losses that may occur when implementing monetary policy.


The goal of the central bank in its investments is not to earn the largest income possible, but to keep its assets safe and quickly available for use if necessary. Its investment must still ensure a stable, moderate income though. The assets of Eesti Pank are invested by the Financial Markets Department, which also assesses and manages all the associated risks.

At the end of 2017, Eesti Pank’s portfolio of investment assets stood at 363 million euros.

Eesti Pank invests the majority of its assets in the bonds of advanced countries, because comparison of different asset types shows that these bonds produce relatively stable income with low risk. Part of the portfolio is invested in shares, or more accurately in ETFs, which are index funds traded on stock exchanges. Share investments help hedge the risk of bond-based portfolios, because the changes in the prices of bonds and shares are not strongly related, or may even be in opposite directions. They also allow a little more income to be earned.

Alongside its investment portfolio, Eesti Pank also holds 8250 Troy ounces, or 256.6 kg, of gold, which is kept by the central bank mainly for historical reasons. Gold is not an appropriate form of investment for Eesti Pank as its price cycles can last several decades, meaning the central bank may not be able to earn anything from it for 20-30 years.

Eesti Pank publishes a review of its asset management in its annual report, and in its quarterly balance report on the website.



The profit of Eesti Pank is divided by the Supervisory Board of the central bank, which is independent in making its profit distribution resolution. Since the restoration of independence of Estonia, the central bank has usually assigned a quarter of its profit to the state budget. In 2017 this amounted to 1.1 million euros (from a total of 4.3 million euros). Since 1992 Eesti Pank has contributed 123 million euros to the state budget.


Prior to the banking and monetary reform of 1928, the Estonian government raised a foreign loan (reform loan) according to the recommendation of the League of Nations. Most of the loan was transferred to Eesti Pank. This laid the foundations for the reserves backing the kroon. Eesti Pank started to grow the currency reserve received as a result of the reform loan. The majority was exchanged for the most secure guarantee at that time – gold – which was deposited in foreign banks.

By 1939, issued banknotes were secured by more than 100% of gold and foreign currency reserves. The economic development of the country came to a halt when the Soviet Union annexed Estonia in June 1940. The Estonian central bank was obliged to waive all of its gold reserves in Sweden, Great Britain and the USA. The value of the reserves was nearly 41 million Estonian kroons at the time. In fact, Moscow only managed to get hold of the gold deposited with the Swedish National Bank, which was valued at 10 million kroons. Although Eesti Pank was liquidated on 10 October 1940, some of the bank’s assets were preserved in foreign banks during the years of occupation.

In order to introduce the country’s own currency again after the restoration of independence and to collect the reserves required for monetary reform, Eesti Pank started to apply for the gold deposited abroad at the end of 1991. The Bank of England opened the gold deposit of Estonia as early as March 1992; the Bank for International Settlements (BIS) did the same that July. At the same time, the Swedish central bank paid for the gold deposited prior to the war. The Estonian gold deposit in the Bank of New York of the US Federal Reserve was opened in January 1993. In 1992 and 1993 Eesti Pank exchanged the majority of the gold for the bonds of developed countries, i.e. for investments that were more liquid and profitable and that were less subject to price fluctuations. In the course of the process Eesti Pank sold 11.1 tonnes of gold. 256.6 kg of gold was preserved; this is deposited with the Bank of New York of the US Federal Reserve.


“Money” is arguably one of the most attention-grabbing words in any language. Quite a few historical events have occurred due to money. As such, it is not surprising that there is more curiosity and gossip in places where there is a lot of money. Here we will attempt to address some urban legends, misunderstandings and confusing topics that have come to our attention.

Do you know ...

... that how many reserves were left backing the kroon upon the introduction of the euro?

The monetary reform of 1992 led to a monetary system based on the strict rules of the currency board being implemented in Estonia, according to which all of Eesti Pank’s liabilities arising from the kroon had to be fully covered by negotiable external assets to ensure a fixed exchange rate. To cover possible losses and risks and increase the reliability of the currency board, the kroon was oversecured, i.e. the central bank had more assets than currency in circulation.

From 1 January 2011 the reserves backing the kroon became the reserves backing the euro, and some of the principles were altered. Moreover, money has been divided in another manner from the accounting point of view – external assets could only cover part of the central bank’s liabilities and part of the money could be issued to banks in the form of monetary policy loans. Thus, just as Estonian kroons were only emitted against foreign currencies, the euro area also uses euro assets to do this. This means that in comparison with the era of the kroon the amount of external assets of Eesti Pank has decreased, but the volume of the bank’s assets has generally remained the same because the quantity of cash in circulation has not changed.

... how big the gold reserve of Eesti Pank is?

Eesti Pank has gold in the amount of 8,250.171 Troy ounces or 256.6 kg (as at 31 December 2010). The monetary value of gold can be examined on the balance sheet on the bank’s website. Of precious metals, Eesti Pank’s assets only include gold; there are no silver reserves.

... why the share of gold among reserves is so small?

The proportion of gold in currency reserves has been reduced by most central banks around the world during the last couple of decades. Although the price of gold has increased over a longer period of time, its price level has fluctuated quite a lot. Gold does not earn interest, its secure storage is costly and trade in gold is complicated. Nevertheless, central banks have not entirely waived gold reserves. Although people tend to think of gold as the ultimate asset, it actually also helps diversify investments. However, central banks generally invest more of their reserves in assets (mostly securities) that can be exchanged for cash more easily, that are more profitable and that are less subject to price fluctuations.

            ... whether forests form part of the reserves of Eesti Pank?

People sometimes mistakenly think that forests are among the assets of Eesti Pank. When Eesti Pank started to apply for gold deposits when preparing for the monetary reform of 1991, the opening of deposits was quite sluggish. However, it was not useful to postpone the monetary reform for political or economic considerations. As negotiations had yielded no results, Eesti Pank proposed that a conditional currency reserve in the amount of 150 million US dollars be established as a temporary solution on account of the national forest fund. The Supreme Soviet approved the proposal. Forests were recorded as assets of Eesti Pank until 1997. These reserves were never actually needed – they represented a mere possibility. The reserves backing the Estonian kroon were formed of returned gold and foreign currencies. Unfortunately, the myth that forests were the main form of security for the Estonian currency persists.

            ... what the difference is between the reserve of Eesti Pank and that of the government?

The reserve of Eesti Pank and the state budget reserve of the government are unrelated. The differences are illustrated in the following table.


Central bank reserve

Government reserve


To ensure the stability of the monetary system

To cover the liabilities of the state


Used for currency interventions, if necessary, i.e. to purchase or sell home currency in order to influence the exchange rate

Used in a budgetary year to finance expenditure exceeding the accrual of revenue to the state budget and to perform liabilities assumed by the state

Implementation of funds

Decided by the central bank

Decided by the government or the Minister of Finance under the authority of the government


Eesti Pank is not responsible for the liabilities of the state and the state is not responsible for the liabilities of Eesti Pank. However, Eesti Pank contributes part of the income it earns from the management of its reserve to the state budget of Estonia.