The establishment of the Bank of Lithuania in 1990

The Bank of Lithuania was established on 1 March 1990, 10 days before the Act of the Re-Establishment of the State of Lithuania was signed. However, it started its operation only after the independence of Lithuania was re-established and continued the traditions of the central bank that operated during the interwar period. On 4 September 1990, the Supreme Council - Restoration Seimas of the Republic of Lithuania approved the Bank of Lithuania’s statute and fixed capital. At the end of the year, Lithuania’s first commercial banks started their operations.

Where did it all start? A history of (almost) a 100 years

The history began around 100 years ago. Plans to establish a bank responsible for issuing money and to introduce the national currency were initiated as soon as the independence was reinstated, but the Bank of Lithuania started its operation only on 2 October 1922. Auksinas (ostmark) that was in circulation until this day was replaced by litas and cents. The bank’s founder was the government. Its fixed capital was 12 million litas. Around 80% of the Bank’s shares were owned by the state, the remainder of the shares could be owned by municipalities, societies and even individuals. The Bank of Lithuania’s main objective was to monitor the cash flow, make cash disbursement easier, create a stable and durable monetary system and encourage the development of agriculture, industry and trade. The bank was granted an exclusive right to issue banknotes for 20 years. It was also entitled to act as the state treasury and a savings bank as well as to distribute and buy out government loans, grant commercial loans, etc. The stability of litas was ensured by gold and foreign currency reserves as well as securities. The exchange rate of the national currency to dollar (10:1) was set based on the gold content of litas. Strict monetary policy of the Bank of Lithuania aided in maintaining a stable exchange rate of litas even during economic downturns. Litas became a trusted currency and one of the strongest currencies in the world,  retaining its initial gold parity up until 1940. Lithuania was occupied on 15 June 1940 and the Bank of Lithuania was nationalised. During the years of Hitler’s occupation, the bank was forced to operate as a commercial bank, while from 3 March 1943 its operations were entirely prohibited. When the Soviet Union occupied Lithuania again, the Bank of Lithuania was made part of the Soviet Union’s banking system.
 

The return of the Bank of Lithuania

The Law on the Bank of Lithuania and the Resolution on the Establishment of the Bank of Lithuania were adopted before the Independence because in its last days, the Supreme Soviet of the Lithuanian SSR was forced to take into consideration the pressure that was put on it by society and had to adopt some laws that did not comply with its views. People of Lithuania understood that one of the main attributes of a country is its national currency, a state central bank and a banking system. Even before Lithuania declared its independence, on 18 May 1989. On 13 February 1990, the Supreme Soviet of the Lithuanian SSR approved the Law on the Bank of Lithuania and adopted a resolution to establish the Bank of Lithuania on 1 March. The Bank of Lithuania was reborn.

Truth be told, the first steps of the Bank of Lithuania were very challenging because the Soviet Union enforced an economic blockade on Lithuania, severed trade relations, blocked the work of railways, port and banks, were undermining the energy system and disturbed transactions. In addition to that, the central bank had to be recreated from scratch: it was needed to form its structure and its fixed capital, to find specialists, to obtain premises, technical equipment and funds for the beginning of its operation.

From 1990 to 1992, Lithuania was still part of the rouble area, therefore the Bank of Lithuania couldn’t have an active monetary policy and so it focused its attention on the preparations to introduce national currency. On 1 May 1992, talonas was released into circulation alongside the rouble as its substitute. On 1 October 1992, talonas became the only currency unit having the status of legal tender and the Bank of Lithuania was able to perform the functions of a central bank independently.

On 25 June 1993, litas and cents entered into circulation. Litas returned to Lithuania after more than 50 years.

In 1992, the Bank of Lithuania recovered gold reserves that the Republic of Lithuania had until World War II, that were stored at the central banks of Great Britain and France and at the Bank for International Settlements and also received a compensation for the gold that was stored at Sweden’s central bank. Currently these reserves (almost 5.8 tonnes) are stored at the Bank of England.

Employees’ recollections about the Bank of Lithuania’s first days in operation

(recollections obtained from the Bank of Lithuania’s journal “About us”)

Recollections of Birutė Grinkytė (currently Head of the General Statistics Division):

“The most memorable was the enthusiasm of people. We took it upon ourselves to create the Bank of Lithuania’s logo which was later completed by artists. We wrote letters to various central banks. ( . . . ) Especially memorable was night-time duty during the events of January 1991. At the time we thought that after the USSR army takes over radio and television, the most important state bank is going to be next. Three people would be on duty at once and we somehow had a billiards cue which we were jokingly calling our weapon. ( . . . ) Even more memorable was how only a couple of employees were shown the examples of the first cents that were brought from England like it was the biggest secret and then they seemed so gorgeous and almost sacred!”

Recollections of Žaneta Kučinskaitė (rapporteur for the General Division at that time):

“I will never forget my first day at work because I literally had to create my own workplace. ( . . . ) I asked for permission from the secretary of the USSR Agricultural Bank’s republican office to sit at the edge of her table. I may not have asked right because I did not get permission. I was offered a windowsill...”

Other employees remember the animosity of the old-timers in addition to the enthusiasm of the first employees.

However, the Bank of Lithuania became more strong hand in hand with the country and nowadays the Bank’s mission - to seek a balanced and sustainable economic development of the country by implementing monetary and macroprudential policies, upholding a trustworthy and efficient functioning of the country’s financial system - is smoothly being implemented.