Establishment of the Bank of Lithuania in 1990 and its Activities to the Present

The Bank of Lithuania, established in March 1990, has continued the traditions of the central bank operating in the period between two world wars.

From 1990 to 1992, when Lithuania was still in the rouble zone, the Bank of Lithuania was not able to pursue an active monetary policy, and its main efforts were aimed at preparing for the introduction of the national currency. In 1992 the temporary currency, the talonas, was introduced, which allowed the Bank of Lithuania to perform the functions of an independent central bank. The litas was introduced in 1993, triple-digit inflation was curbed and the exchange rate of the litas was stabilised.

Seeking relative price stability over a longer period, the Litas Credibility Law of 1994 pegged the litas to the US dollar at fixed exchange rate; pursuant to this Law, the litas is issued into circulation with a 100 per cent backing with gold and convertible currency reserves, and the main source of issue is the purchases of foreign exchange by the Bank of Lithuania.

The international reserves, initially consisting of the inter-war Bank of Lithuania gold and foreign exchange that were returned by other central banks, were continuously supplemented with foreign exchange reserves accumulated by the Bank of Lithuania and invested following the international practices of central banks.

The sector of commercial banking, having gone through the first demanding trials in 1995, has become stable and continued to expand, building on the adopted decisions towards strengthening the capital base, tightening of prudential requirements and supervision and the introduction of the established international standards of safe banking. An interbank funds transfer and settlement system has been developed and is now used by all commercial banks and foreign bank branches operating in Lithuania.

The new Law on the Bank of Lithuania adopted in 2001 granted greater independence to the central bank and wider possibilities to be active in implementing monetary policy.

With Lithuania’s continuing integration in the Western structures, development of economic relations with the European Union Member States and corresponding changes in trade currency structure, on 2 February 2002 the litas was pegged to the euro, while the fixed exchange rate regime was retained.

On Lithuania's accession to the European Union (EU) on 1 May 2004 the Bank of Lithuania became a member of the European System of Central Banks (ESCB), which comprises the European Central Bank (ECB) and the national central banks of all EU Member States.

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Bank of Lithuania in 1922–1940

After restoring its independence in 1918, for several years Lithuania did not have its own bank of issue. For a period after World War I, currencies of other countries circulated in Lithuania. The whole credit system was to be developed from the ground up. By agreement with the German Darlehnkasse Ost, the mark served as legal tender until the establishment of the bank of issue. In the middle of 1922, the value of the mark started tumbling down. Hyperinflation brought trade, finance and credit into a disarray. The Seimas of Lithuania urgently passed the laws on the Lithuanian monetary unit, the litas, and on the establishment of the Bank of Lithuania. The Bank of Lithuania was a stock company, with a capital of LTL 12 million and 80 per cent of the shares held by the Treasury.

The Bank of Lithuania started operating in 1922. By decree of the President, Professor Vladas Jurgutis was appointed the first Governor of the Bank. The Bank of Lithuania was granted an exclusive right to issue banknotes, regulate the turnover of currency and ensure a stable monetary system.

The value of the litas was ensured with gold, foreign exchange reserves and securities. The exchange rate of the national currency against the dollar (10:1) was set on the basis of the litas gold content. The Bank of Lithuania pursued a tight monetary policy, which helped to maintain a stable exchange rate of the litas in times of economic crises. The litas gained in confidence to become one of the firmest currencies in the world and retained its gold parity up to 1940.

In 1940 the Soviet Union occupied Lithuania, its economy was incorporated into the socialist economic system, the litas was banned, banks were nationalised, while the Bank of Lithuania was incorporated into the banking system of the Soviet Union.

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Origins of Central Banking in Lithuania

The origins of central banking in Lithuania go back to 1768 when the Seimas decided to establish a national bank of issue (Bank Polski i Litewski) with the right to issue notes. The implementation of the idea was started in 1792. Branches of the bank were to be opened in Vilnius, Gardinas and Minsk. Unfortunately, following the defeat of the uprising against the Tsarist Russia led by Tadeusz Kościuszko and the third division of Lithuania and Poland (1795), Lithuania lost its sovereignty and a possibility to develop its own monetary system.

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Key Dates in the Development of the Bank of Lithuania
1922
9 August	Law on the Monetary Unit adopted by the Constituent Seimas
11 August	Law on the Bank of Lithuania adopted by the Constituent Seimas
22 September	Articles of Association of the Bank of Lithuania approved by the Cabinet of Ministers
27 September	Bank of Lithuania founded at the first Constituent Meeting
2 October	Start of activities of the Bank of Lithuania Litas issued into circulation State Treasury offices begin exchanging ostmarks into litas
1923
1 January	Settlements in ostmarks stopped
6 February	All public management institutions prohibited from accepting taxes and fees in foreign currency
1925	Silver and bronze coins issued
1928
15 July	First Bank of Lithuania bulletin issued
1931
31 March	The Bank of Lithuania becomes a shareholder of the Bank for International Settlements
1940
26 July	Law on the Nationalisation of Banks adopted
6 August	All banks nationalised The nationalised Bank of Lithuania is transferred to the USSR State Bank and becomes its branch
1990
13 February	Resolution of the Supreme Council of the Lithuanian SSR “On the establishment of the Bank of Lithuania” adopted
1 March	Bank of Lithuania founded
4 September	Articles of Association and core capital of the Bank of Lithuania approved by the Supreme Council of the Republic of Lithuania – Reconstituent Seimas
3 November	Government resolution “On the production of coins of the Republic of Lithuania” adopted
17 November	Government resolution “On the production of litas banknotes” adopted
27 December	First foreign currency account opened with the Bank of Lithuania
31 December	The Bank of Lithuania takes over the assets of the Lithuanian subdivisions of the former specialised USSR banks
1991
28 February	First correspondent account of the Bank of Lithuania opened in Sweden
31 October	First shipment of coins minted in England delivered to the Bank of Lithuania
5 November	Law of the Republic of Lithuania on the Issue of Currency adopted by the Supreme Council of the Republic of Lithuania – Reconstituent Seimas. Litas Committee formed
29 November	First shipment of banknotes printed in the USA delivered to the Bank of Lithuania
16 December	First foreign exchange auction held at the Bank of Lithuania
29 December	Resolution of the Litas Committee “On the preparation for the restructuring of the monetary system of the Republic of Lithuania” adopted
1992
14 February	The Bank of Lithuania reclaims its gold holdings from the Bank of France
31 March	The Bank of Lithuania reclaims its gold holdings from the Bank of England
1 May	Monetary units – coupons – issued to circulate along with the rouble
30 June	Bank of Lithuania membership and shareholder’s rights in the Bank for International Settlement (Basle) restored
1 September	Commercial functions of the Bank of Lithuania transferred to the newly established Lithuanian State Commercial Bank
16 September	Resolution of the Litas Committee “On the issue of the temporary currency of the Republic of Lithuania, the talonas, and withdrawal of the rouble” adopted
1 October	The talonas becomes the main temporary monetary unit. Circulation of the rouble stopped. National monetary system created
21 October	First loan from the International Monetary Fund to support the stability of the litas and international reserves granted
1993
30 January	Resolution of the Government of the Republic of Lithuania “On establishing Bank of Lithuania convertible currency reserves” adopted
14 June	Resolution of the Litas Committee “On the issue of the national currency of the Republic of Lithuania, and withdrawal of the temporary currency, the talonas” adopted
25 June	Litas issued
1 July	Law of the Republic of Lithuania on Currency adopted by the Seimas of the Republic of Lithuania
20 July	Circulation of the talonas stopped
1 August	Settlements in foreign exchange in the Republic of Lithuania stopped
21 September	The Bank of Lithuania begins publishing its bulletin
21 October	Start of the operations of the interbank currency market
1994
17 March	Law of the Republic of Lithuania on the Credibility of the Litas adopted by the Seimas of the Republic of Lithuania (effective from 1 April)
19 July	First Government securities auction held at the Bank of Lithuania
1 December	New Law of the Republic of Lithuania on the Bank of Lithuania adopted by the Seimas of the Republic of Lithuania
1995
21 December	Law of the Republic of Lithuania on the Insurance of Public Deposits adopted by the Seimas of the Republic of Lithuania
1997
16 January	Bank of Lithuania Monetary Policy Programme for 1997–1999 approved by the Board of the Bank of Lithuania
10 May	First issue of the Bank of Lithuania scholarly journal Monetary Studies published
4 June	First repurchase agreement (repo) auction held
28 August	First time deposit auction held
1998
10 December	Resolution of the Board of the Bank of Lithuania “On the calculation and publication of average international interest rates (VILIBID and VILIBOR)” adopted
17 December	Resolution of the Board of the Bank of Lithuania approves the implementation of the Core Principles for Effective Banking Supervision Approved by the Basle Committee on Banking Supervision
1999
1 July	Bank of Lithuania Guidelines on the Application of Monetary Policy Instruments approved
13 October	Statement of the Bank of Lithuania “On the Litas Peg to the Euro” issued
2001
13 March	New Law on the Bank of Lithuania adopted by the Seimas of the Republic of Lithuania
1 April	Amendments to the Law on the Credibility of the Litas in relation to the shift of the peg from the US dollar to the euro adopted by the Seimas of the Republic of Lithuania
28 June	The Board of the Bank of Lithuania establishes that as of 2 February 2002 the euro will become the anchor currency, and the official exchange rate of the litas will be set on the basis of the US dollar and euro exchange rate in the currency market on 1 February 2002
2002
1 February	The Board of the Bank of Lithuania, in co-ordination with the Government of the Republic of Lithuania, establishes that as of 2 February 2002 the euro will be the anchor currency of the litas, and the official exchange rate of the litas will be 3.4258 litas for 1 euro.
2004
1 May	The Bank of Lithuania becomes a member of the European System of Central Banks
28 June	Lithuania joins Exchange Rate Mechanism II (ERM II)

Further readings on the history of the Bank of Lithuania can be found in the journal Monetary Studies published by the Bank of Lithuania