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1918–1939: Establishment of Eesti Pank and its development as the central bank

24 February 1918

Members of the Estonian Salvation Committee headed by Konstantin Päts form the first government of the Republic of Estonia – the Provisional Government. The Republic of Estonia has been established. Events take place in the Tallinn office building of the former Russian National Bank, which is a symbol of the birth of Estonian statehood and a place where Eesti Pank later commences its activities.

24 February 1919

The Provisional Government takes a decision in its sitting organised to celebrate the first anniversary of the Republic of Estonia establishing Eesti Pank and approving its Statute. The State Treasury assigns 10 million marks for the fixed capital of the bank.

Eesti Pank develops into a national bank issuing banknotes and being under the control of the government. Eesti Pank takes care of monetary affairs and credit regulation of the state. By way of long-term investment loans the bank helps the impoverished economy of the state to get back on its feet.

At the beginning of the independent Republic of Estonia several securities issued by different institutions are used as national legal tenders: payment notes from the Clearing House of Tallinn, short-term treasury bills bearing a 5% interest rate and state treasury notes.

25 March 1919

The government appoints Mihkel Pung as the first Governor of Eesti Pank.

Mihkel Pung. Source: Eesti Pank Museum

3 May 1919

The bank’s fixed capital of 10 million marks is registered in the ledger of Eesti Pank and the first sum of money is transferred to the current account. Eesti Pank commences its activities. This date is considered the birthday of Eesti Pank.

March 1921

Eesti Pank starts issuing the first banknotes – Estonian marks. At the same time, Eesti Pank is the largest commercial bank in Estonia engaged in regular deposit and lending activities. In intense competition with other banks, Eesti Pank almost doubles its loan portfolio and almost triples its deposit amounts compared to the other commercial banks.

In accordance with the Statute of Eesti Pank, the Estonian mark must be based on gold, but real coverage comes up short and, therefore, banknotes issued are actually paper currency with no cover. In 1924 the exchange rate of the dollar already exceeds the level of 400 marks. A decrease in the exchange rate of the mark is also influenced by currency speculations (transactions made only to benefit from changes in exchange rates).

However, the situation improves little by little. The preparations for monetary reform started in 1923 provide strong impetus for this. The crisis of the first period of activity of Eesti Pank clearly shows that such voluminous financing of the economy does not enable the central bank to efficiently perform its primary function – to ensure the stability of money.

20 June 1924

As the first step towards monetary reform, the Riigikogu legalises a new accounting currency unit – the gold kroon. The gold kroon is divided into one hundred marks and equals the gold content of the Swedish krona, i.e. 0.403226 g of pure gold. All the loans in Eesti Pank and private banks are revalued into kroons. Loan contracts may thereafter be entered into in kroons. Liabilities must still be paid in marks and at the daily exchange rate determined by the stock exchange. This puts a limit on currency speculation and increases trust in the Estonian mark. Stability is even more strengthened by the monetary and banking reform of 1927–1928.

6 November 1926

Jüri Jaakson is appointed the Governor of Eesti Pank.

Jüri Jaakson oin his office. Source: Eesti Pank Museum

3 May 1927

The Riigikogu approves the new Statute of Eesti Pank and adopts three laws required to reorganise the activities of Eesti Pank and implement the monetary reform: the Currency Law, the Law on the Termination of Issuing State Treasury Notes and Exchange Notes and the Foreign Loan Law.

The League of Nations grants Estonia a loan in the amount of 1.35 million British pounds for the purpose of the monetary reform, of which 1 million pounds is assigned to Eesti Pank to base the kroon on the gold standard and 0.35 million pounds to operating capital of the Long-term Loan Bank which is to be founded. The latter was established in order to release Eesti Pank from long-term loans that had become illiquid (encountered difficulties). The government and Eesti Pank set off all mutual receivables and payables.

1 January 1928

Eesti Pank commences activities in accordance with the new laws. The Estonian kroon, divided into 100 cents, becomes legal tender. The gold content of the kroon is 0.403226 g, as per the gold kroon. The gold standard established in 1924 remains unchanged, but acquires real security i.e. a reserve.


With the help of the monetary reform, an up-to-date monetary system was established in Estonia. Eesti Pank operates as an independent currency-issuing central bank with limited functions. The primary function of the bank continues to be the reinforcement of the value of currency. To ensure that the bank is independent of the government, an Assembly and a Supervisory Board of Eesti Pank consisting of ten members are constituted. The Governor is the executive director of the bank and the Executive Board is the executive body. Eesti Pank is transformed into a joint-stock bank by selling the shares of the government.

The fixed capital of the bank is increased from 2.5 million kroons to 5 million kroons. Gold and negotiable foreign funds exempt from liabilities are included in the reserves. Pursuant to the new Statute of the central bank, the banknotes in circulation and other constant liabilities of the bank must have at least 40% cover. The issue of state treasury and exchange notes is terminated. Eesti Pank is required to exchange kroons for foreign currencies to ensure the reliability of the kroon.

The global economy shows the first signs of crisis soon after the issuing of the kroon. England gives up the gold standard in autumn 1931. Keeping in mind the extent of economic relations and stability of economic partners, most of the reserves backing the kroon are invested in British pounds and this causes the inevitable devaluation of the Estonian kroon.

28 June 1933

The Estonian kroon is devalued by 35% due to the global economic crisis.


From 1 November 1933 the exchange rate is 1 British pound = 18.35 Estonian kroons. The reserves, i.e. gold and negotiable currencies, increase from 46% in 1933 to 59% in 1938 in comparison with liabilities.

Executive Board of Eesti Pank in 1938. Source Eesti Pank Museum

The Estonian kroon remains stable and reliable at both the international and national levels in the increasingly complicated circumstances at the end of 1930s. The devaluation and improved economic situation of foreign markets have a stimulating effect on the state’s manufacturing and export activities and the economic recovery that started in 1934 continues year by year at an accelerating pace. The stability of money, the well-functioning monetary system and the smooth operation of banks ensure public trust (e.g. savings are invested in banks). World War II disturbs economic activities to some extent, but does not yet jeopardise the activities of Eesti Pank and the development of the national economy as a whole. The rate of exchange of kroons to British pounds remains stable until 1940, but unfortunately the invasion of Estonia by foreign powers discontinues the development that has run so smoothly.

Jüri Jaakson laying the cornerstone of the main building of Eesti Pank on 30 September 1933. Source: Eesti Pank