- Reset + Print

President Kaljulaid introducing the lecture of Prof Jeffrey Sachs in the Bank of Estonia

Eesti Panga president Ardo Hansson ja aukülaline professor Jeffrey Sacks.
President of the Bank of Estonia Ardo Hansson and the guest of honour Jeffrey Sacks.
© Jane Faizullin

17.12.2018

Members of the staff of the Bank of Estonia, Professor Jeffrey Sachs, guests.

It is an honour to be in this hall, which bears the name the Independence Hall of the Bank of Estonia. I do not know if there are any other countries where the desires of the people to be independent and to have their own money have been as strongly linked as they have in Estonia, because without our own money we would never have been able to regain our independence.

The first Estonian money was born 100 years ago during the War of Independence. The costs of the war were very high. In the first months of 1919 the military campaign was costing a million marks a day and the government was running out of money. There was naturally no hope of getting a large foreign loan under such circumstances.

The first rapid steps towards having our own money were taken in January 1919 by the Minister of Finance of the time Juhan Kukk – whose bust is here in this Independence Hall – when he proposed using as currency the short-term state treasury notes that had already been issued at a rate of 5% interest. Of course, the government and the people did not really consider such debt notes as real money.

Fortunately, at the same time that these promissory notes started to be used, preparations were being made to issue a real national currency into circulation. The decision to call the first Estonian currency the mark was taken on 9 December 1918.

Eesti Pank was founded in February 1919 and in May the same year the provisional government of the time passed a regulation that the only legal means of payment was the Estonian mark.


It is true that when the new currency was launched into circulation, the people did not have a great amount of trust in it. Times and circumstances were difficult and there were barely enough collateral assets to back the currency. Trust started to grow from early 1921 as the exchange rate of the mark stabilised.

The steps taken a century ago succeeded in their aim as the circulation of the national currency allowed the Estonian state to fight the War of Independence and run the everyday life of the country.

Decisions were also taken in extreme circumstances almost 30 years ago, as independence had returned, inflation was flying high and economic reforms were starting. In fact, it was the monetary reform of the time that launched the innovation in the Estonian public sector that continued later with the novel tax system and eventually led to the e-state and the law on genes. These and other innovative solutions have helped Estonia to succeed in developing the economy faster than advanced countries and those countries who started from the same position as us.

Siim Kallas is here today. I think many of us have heard the story several times of how Siim sat with Dr Michel Camdessus and described Estonian monetary reform essentially in one sentence, saying “we shall not postpone”. This led the IMF to support us, though it went against their better judgement, and some years later it led the IMF to understand that this was the good way to do monetary reform. We had taken the first independent step to move forward faster than was recommended by many people who had seen monetary reforms.

Siim Kallas, Mart Laar, several others, and also Vahur Kraft later as Governor of Bank of Estonia – we all understood that doing things as they had been done before would not let us catch up. A follower is only ever a follower and simply copying is never going to allow faster forward movement.

For me it was the monetary reform that showed the point where Estonia had chosen to make its own choices and take its own risks. It is not impossible that this tactic could someday cause painful losses for us, but so far we have succeeded.

A century ago it took almost two years for people to start to trust the Bank of Estonia and the Estonian money, but when the Estonian kroon replaced the rouble we trusted it even before it existed. We were waiting to have our own money and we believed in it as a tool that would spirit us away from the collapsing Soviet economic space and support the reforms that lay ahead.

The people of Estonia do not rush to believe in anything, but our faith in our own money has been quite certain ever since that time. We were right, and the monetary reform of 1992 and the launch of the Estonian kroon were vital for the building of the state not only economically, but also because they put Estonia on the gradual track towards joining the European economic space.

This was our money that we created and we held on to the exchange rate through balanced budgets like a dog to a bone and we still do. When the German mark was replaced by the euro, the exchange rate became 15.64(6), which was quite an absurd rate, but we did not want to change it out of principle. This helped foreign investors keep faith in our money and our monetary system and I believe that we can be proud of this even today as a member of the euro area.


Even though we loved our kroon and it was emotionally very difficult for us to abandon it, we managed to do what was rationally necessary.

I would like to emphasise again that in 2009 the government passed reforms for the transition to the euro that meant we suffered the steepest recession in the area in that year, but in 2011 we were able to join the euro. This could not have been done if the people had not understood and supported it. It is particularly notable that we still wanted to abandon our national currency and joined the euro.

Recent survey data from Eurobarometer put support in Estonia for the euro at 85% of those questioned. This is a remarkable level of support.

I am very glad that Eesti Pank has always cared for the stability and quality of the money in Estonia and has worked to achieve this so that our state can continue to succeed.

In speaking of the success of Estonia, I should mention our guest of honour today Columbia University Professor Jeffrey Sachs, who has made a great contribution to the development of Estonia. In the first years after independence was regained, the reformers in Estonia took a great deal of inspiration from the work of Professor Sachs.

Finally, I would like to make mention of another great man, the world-famous economist from Estonia who was also a professor at Columbia University, Ragnar Nurkse.

The year 2017 saw the 110th anniversary of the birth of Ragnar Nurkse. The Estonian politician and publicist Kalev Kukk has written that in the 1950s Ragnar Nurkse was as hot in South America as Jeffrey Sachs was in the early 1990s in Central and Eastern Europe.

I am very glad that we have produced such a great figure of the free market economy, who probably did not win a Nobel prize only because his life and working years were so short. I would not want the birthday celebrations of the Bank of Estonia to go by without his name being mentioned.

I wish us all the goodwill and the courage to take bold steps, even when we are told that it is not possible. It is, if we set our hearts to it. May we continue to have an open mind and sometimes the heart to accept that we have missed something or come in too late.

It weighs on my soul that although our state is economically successful and there are only 32 other countries where wages are higher than here, we still think that we are not strong enough to build a normal social system. The sort where families with disabled children can manage and where the elderly would not be left feeling hopeless.

You know that I am generally politically conservative and support a free-market economy. This free market economy and economic success brings a duty to share the wealth created with those who are unfortunately weaker than us and I hope that we will have enough empathy to be able to do that.

Thank you for listening and many congratulations to the Bank of Estonia!