The Bank of Latvia ( lv, Latvijas Banka,) is the

central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central b ...

of Latvia. It is among the nation's key public institutions and carries out economic functions as prescribed by law. It was established in 1922. The principal objective of the Bank of Latvia is to regulate currency in circulation by implementing monetary policy to maintain price stability in Latvia. Until 31 December 2013, the bank was responsible for issuing the former Latvian currency, the lats. The Bank of Latvia administration is located in Riga. The fiscal year for the bank begins on 1 January and ends on 31 December.

History

On 7 September 1922, the Constitutional Assembly adopted the Law on the Establishment of the Bank of Latvia. The Bank of Latvia was granted emission rights. The Bank's interim statutes were approved on 19 September 1922, with the decision of the

Cabinet of Ministers A cabinet is a body of high-ranking state officials, typically consisting of the executive branch's top leaders. Members of a cabinet are usually called cabinet ministers or secretaries. The function of a cabinet varies: in some countrie ...

, and its initial capital was 10 million lats. On 24 April 1923, Saeima approved the Statute of the Bank of Latvia, signed by President

Jānis Čakste Jānis Kristaps Čakste (14 September 1859 – 14 March 1927) was a Latvian politician and lawyer who served as the first head of an independent Latvian state as the Chairman of the People's Council (1918–1920), the Speaker of the Constitutio ...

on 2 July. The bank was headed by a council and board. The Council consisted of a chairman, a deputy, and 11 members, but the board included a director general, his deputy, and three directors. On 17 June 1940, Latvia was occupied and was incorporated into the

USSR The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen nationa ...

on 5 August. On 25 July, the Law on the Nationalization of Banks and Large Industrial Enterprises was adopted. After the

Second World War World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposi ...

, both money emission and the Treasury's functions were performed by the USSR State Bank, but the money system of the Latvian SSR was under its full control. On 2 March 1990, the Latvian SSR Supreme Council passed the Law "On Banks" and the decision "On the Bank of Latvia". It determined that the Bank of Latvia, a local central bank, was reestablished as an independent state bank, a

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...

issuing center, a

in relation to

commercial bank A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit. It can also refer to a bank, or a division of a large bank, which deals with co ...

s, an organizer of the execution of the

state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States * ''Our S ...

budget, and a

monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money supply, often a ...

regulator. However, only after the Declaration of 4 May 1990 on the restoration of independence of the Republic of Latvia and the collapse of the USSR with the decision of the Republic of Latvia Supreme Council of 3 September 1991 "On the Reorganization of Banking Institutions in the Territory of the Republic of Latvia", the Bank of Latvia became the only central and issuing bank. It took over the ownership and structure of the USSR banks, Latvijas Republikānisko banku, and other state credit institutions. On 4 March 1992, the Supreme Council of the Republic of Latvia passed the Law "On the Acquisition of the Bank of Latvia established in 1922". The Bank of Latvia's status as the central bank of the country and the issue bank was definitively consolidated by the laws of the Republic of Latvia "On Banks" and "On the Bank of Latvia" adopted on 19 May 1992. For the first time in Latvia, the independence of the national central bank from the government policy was ensured through legislation. The Law "On the Bank of Latvia" did not envisage its commercial activities, therefore, a decision was taken on the restructuring and privatization of 49 Bank of Latvia branches.

Monetary policy strategy and exchange rate policy

Like most central banks of the world, the main goal of the Bank of Latvia is to provide

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...

at a certain level. After joining the European Union (EU), until its membership in the

Economic and Monetary Union An economic and monetary union (EMU) is a type of trade bloc that features a combination of a common market, customs union, and monetary union. Established via a trade pact, an EMU constitutes the sixth of seven stages in the process of economic ...

(EMU), the Bank of Latvia was able to pursue its monetary policy, provided that it is in line with the common EU interests, does not harm the development of other EU Member States, and contributes to economic stability. Membership in the EU also envisages joining EMU and the euro. After joining the EU, Latvia had to demonstrate its ability to meet the EMU accession criteria. One of these criteria was the two-year membership of the

Exchange Rate Mechanism The European Exchange Rate Mechanism (ERM II) is a system introduced by the European Economic Community on 1 January 1999 alongside the introduction of a single currency, the euro (replacing ERM 1 and the euro's predecessor, the ECU) as p ...

II (ERM II). Latvia joined it on 2 May 2005. ERM II means that at least two years before the

euro The euro ( symbol: €; code: EUR) is the official currency of 19 out of the member states of the European Union (EU). This group of states is known as the eurozone or, officially, the euro area, and includes about 340 million citizens . ...

changeover, the lats had been pegged to the euro and the exchange rate of the lats against the euro may fluctuate by no more than +/- 15% against the lats' pegging rate in euro. In order to achieve its main goal, as well as successfully entering the EMU, the Bank of Latvia implemented a fixed exchange rate strategy (EUR 1 = Ls 0.702804). Fluctuations around the fixed coupling rate are possible within +/- 1%. The Bank of Latvia had been implementing the lats attraction policy since February 1994, when the lats was pegged to the SDR basket of currencies. The lats was pegged to the euro on 1 January 2005. Also, at the beginning of 2006 and 2007, the Bank of Latvia operated a refinancing rate instrument, a rate for travel. In a situation where banks do not intend to actively use the instruments offered by the Bank of Latvia, the increase of the refinancing rate has a more signaling function.

Management

The Bank of Latvia is managed by the Bank's Board and Management Board. The council consists of eight people: the

president President most commonly refers to: *President (corporate title) * President (education), a leader of a college or university * President (government title) President may also refer to: Automobiles * Nissan President, a 1966–2010 Japanese ...

of the bank, his deputy, and six members of the council. The Bank's Supervisory Council is managed by the President of the Bank of Latvia. The Governing Council of the Bank of Latvia takes decisions on behalf of the Bank of Latvia. For the practical work and operational management of the Bank of Latvia, the Bank Council establishes a permanent board of six people. The Bank's Governor approves the structure of the Bank of Latvia and recruits and dismisses the Bank of Latvia's employees.

Governors

* Kārlis Vanags (1 November 1922 — 14 October 1923) * Edgars Švēde (15 October 1923 — 21 September 1926) * Kārlis Vanags (22 September 1926 — 13 July 1940) * Kārlis Zandersons (13 July 1940 — 21 July 1940) * Artūrs Graudiņš (26 March – 30 July 1990) * Pāvils Sakss (31 July 1990 – 3 September 1991) *

Einars Repše Einars Repše (born 9 December 1961) is a Latvian physicist, financier and politician, chairman of the Association for Latvian Development. Biography Einars Repše graduated from Latvia State University (now known as University of Latvia) in ...

(3 September 1991 – 20 December 2001) * Ilmārs Rimšēvičs (21 December 2001 – 20 December 2019) * Mārtiņš Kazāks (21 December 2019 – present)

References

External links