At the beginning of 2022⁠—the year marking the centenary of Latvijas Banka⁠—we invited Helmut Rittgen, Director General of Cash at the Deutsche Bundesbank, retired at the end of 2014, to share his memories of his involvement in creating a modern, independent, and internationally respected central bank in Latvia⁠—the bank we know today. Mr Rittgen had a pivotal role in the process.

The historical experience of Latvijas Banka, as it was being restored in the 1990s after the Soviet occupation, demonstrated a strong need to secure central bank independence and establish a safe and stable national currency. This conviction was further supported by modern solutions seen at the German central bank, as well as the support of the Bank of International Settlements.

The Bundesbank responded to the request to advise on preparing the Law on the Bank of Latvia (passed in 1991) and provided technical assistance in Latvijas Banka’s core areas, coordinated by Mr Rittgen from 1992 to 1997. It ranged from concrete issues of monetary policy, banking statistics and financial market supervision to support in developing the state securities market policy and central bank accounting.

Later, when Mr Rittgen was the director of the Landeszentralbank [Bundesbank’s regional office] in Mainz, he was involved in the processes of storing the cash reserves of Latvia’s national currency, the Lats. In the second half of the 1990s, he also advised Latvijas Banka together with a team from Mainz headed by Mr Manfred Wygas on designing and constructing a modern and secure cash centre in Riga, across the river from the main building of Latvijas Banka. The centre began operating in 2002 and today it serves as the regional centre of cash logistics for the three Baltic states, providing euro cash related services also to the central banks in neighbouring Lithuania and Estonia.

A Brief Background

“I come from the Deutsche Bundesbank,” Mr Rittgen states as we start the conversation. “Which means that I come from the Landeszentralbank in Rhineland-Palatinate [Rheinland-Pfalz in German] in the first place.” Who found whom: did Latvia find Mr Rittgen or was it the other way round? As it turns out, the gradual crossing of the two paths was mutual, leading to a fruitful long-term cooperation and friendship. It has been based on a shared understanding of what a central bank working for the common good should look like.

Mr Rittgen offers an introductory aside on the period of the German reunification (1990), highlighting a nuance in his biography that is significant to the topic at hand. For Latvia, the early 1990s coincided with a revival period culminating in regained independence after gruelling decades of post-war Soviet occupation.

“In 1990, we had the reunification of Germany and we [at the Bundesbank] worked hard to bring the Deutsche mark to the former GDR (German Democratic Republic) in a very short time. The process of transferring the knowledge of how to run a central bank like the Bundesbank to the former state bank of the GDR is a significant part of my history. This is a detail worth knowing also when talking about my involvement with Latvijas Banka.”

The Deutsche Mark

“It was very interesting to participate in turning the state bank of GDR, created for planned economy, to a modern central bank. At that time, I worked in Weimar, focusing on central bank refinancing (providing financing to credit institutions).

Then came 1991, a very important date for your country too⁠—Latvia regained independence. The Governor of Latvijas Banka Mr Einārs Repše approached the Governor of the Deutsche Bundesbank Mr Hans Tietmeyer to find some very experienced people to work on a new central bank law and to start operating monetary policy. I was approached for the latter.

Mr Tietmeyer turned to two experienced colleagues, who later became directors general and members of the board: Mr Dieter Haverkamp and Dr Willy Friedmann. That was in the autumn of 1991 (the law was already drafted when I joined a year or so later). Then came Mr Fischer, somebody very experienced in organising the structure of a central bank.

In three months, he made the first steps, assisting the organisational process of Latvijas Banka in cash payments and cashless payments. After that period, he approached the Landeszentralbank’s board of that time, saying, ‘I cannot do it alone—I must have a team! And a person experienced in systemic transition to coordinate the whole thing.’

The coordination of the advisory work was offered to me, initially together with Mr Fischer. ‘You have run a central bank branch yourself; you know the refinancing operations as well as the monetary policy side. You have the experience; would you like to share it?’ This coincided with a time when Mr Fischer became ill and could no longer do this job.

I was first involved in May 1992. I had just started, and the board asked, ‘Can you do it alone?’ I said, ‘Yes, I am willing to do this—it is interesting!’ I saw it as a nice chance to pass over my knowledge and witness that it works in a new place. It really does!” For our conversation Mr Rittgen has prepared a neat file of documents dating back to the period of working with Latvijas Banka. “I double-checked against my papers the year I started,” he adds with a smile.

An Independent Central Bank and a Stable Currency

The Baltic states were hardly terra incognita in Germany prior to the 1990s, but the seismic developments of that decade increasingly made them an item on the regular news agenda. Mr Rittgen elaborates, “I was watching this more as a central banker. I said to myself, ‘There is a group of countries which have the one chance now to develop a modern central bank. What are the main points—stability, value of money. And next, what do you need to be able to create such a system. Not just theory but good work, practical steps for the people to trust their central bank and the currency it issues.’

Each Baltic state did it in a slightly different manner. For Estonia it was more of a currency board; Lithuania did not ask for a consultation; Latvia did it very much like the Deutsche Bundesbank. This is the model which was deep in my thoughts and heart, that of a stable, independent central bank with a clear mandate—a stable currency.

It has to be said that the road Latvia chose was rocky, but I would say that it was the most correct. As Latvia passed the central bank law, I said accordingly, ‘I can work there!’ Otherwise, I would not have accepted the task of coordinating on behalf of the Bundesbank. I found that Latvia had a good chance of succeeding. And it did. So, that was how it all came together in this experience transfer between Latvijas Banka, the Bundesbank and me. From 1992 to 1997, I was in Latvia for a week every two months.

I already mentioned our work in the former GDR—how difficult the process was, especially at the beginning. Changing the system is always a very hard time. It has to do not only with the central bank but the whole country and economy. That meant many people lost their jobs, they had no high income. People in Latvia told me then, ‘We are the lost generation. But we are looking to the future with optimism.’

Ms Bušmane, who assisted me with translation, told me very clearly, ‘We are optimistic and we will do it in a short time.’ But sadly it was clear that one generation will be lost and a ‘short time’ would mean at least 15 years, if not more.”

The Lats Must Return!

“The first thing we detected in Latvia was that the cash sector was in a very difficult situation. There was still the Russian Rouble which had to be removed from circulation as the Latvian Rouble was being introduced, preparing the ground for the Lats, which first arrived in 1993, starting with the five lats banknote. The transition had to be as brief as possible since the interim currency did not have that many security features. In the meantime, the Lats banknotes and coins had to be prepared.

If you are from the banknote sector of the central bank, you know what that means: a heavy workload for the branch network and the central office alike. It was a huge task to accomplish in a few months, made even more difficult by the need to work simultaneously on setting up the bank departments in line with the requirements of a modern central bank.”

Back in 1992 or 1993, the Baltic central bank management teams met at Latvijas Banka’s Training Centre in Jūrmala, a sea-side resort town, for one of their first joint seminars. In December 1995, not that many years later, the European Council in Madrid took decisions on the single currency, including the decision to name it the “Euro”.

The idea of the single currency had been conceived and gradually acquired shape since the early post-war years. The Baltic countries, which in the meantime had managed to regain their self‑determination, promptly expressed their interest during the Madrid meeting. Mr Rittgen recalls that in 1992 the Baltic central bankers were busy with managing the escape from post-soviet economic and financial realities, including hyperinflation.

“I remember asking my Baltic central bank colleagues what thoughts each of the state had about the Euro. The reaction at the seminar was along the lines of ‘why would we get involved?’. I mentioned that eventually Europe might have a common currency. ‘No, no—we each want to have our own currency!’ was the reply. My initial thought was whether this period of ‘own currency’ was still necessary… But then I quickly realised that it was an absolute historical necessity.”

The Baltic countries still had a long journey ahead to switch from their national currencies to the Euro. Moreover, the rules for the euro area membership candidates included the requirement to have run a successful national currency of their own and to fulfil the conditions for joining the common currency.

Ways of Offering Assistance may Differ

When asked to recall the early 1990s, Latvijas Banka’s employees share a common feeling that the Bundesbank had a very systematic and thought-out approach to providing assistance and showing the ropes of running a modern central bank in Latvia.

“At the beginning you got many advisers—the international organisations, other large European central banks. We maintained close contact with them in order to work in the same direction. But helping can differ in so many ways! We tried to work in a long-term technical cooperation and not only in some meetings.

What I said was, ‘Please, let us go this way together. First, I must learn where you want to go. If I know that, then I can figure out how best to assist you on the way, which colleagues of mine I should involve. And I promise: if we do the work together, I will never leave you alone. Even if it takes a longer time—I will be there. If you have a question, we solve it together. But you must take the decision (I can help to prepare it, but you have to make the choice). And then we work on the practical implementation together.’ The best example of this approach was the construction of the new cash centre—the Riga branch. We were always on the site, from the initial sketches up to the opening speeches. Who else does that?!” Mr Rittgen says, laughing.

Technical Assistance in the Core Functions

From his folder Mr Rittgen produces Latvijas Banka’s 1992 Annual Report. “If we take a look at the documents I still have from that time: Latvijas Banka received practical assistance from the Bundesbank on a regular basis with monetary policy, legislation (that was in the very beginning), accounting (we did a lot in that area), banking statistics, securities market policy (that was my speciality at that time), and refinancing of commercial banks by the central bank, which we called open market operations back then. We also provided the opportunity to visit the Bundesbank and its office, the Landeszentralbank in Mainz. We never said, ‘You must do it in a certain way’, no! The Latvian side could see how we do the work in our system and then decide themselves how they want to do it at home, and we would then transfer the experience needed for that.

I have to say, I had a good feeling about Latvia from the very beginning that the results could be good. That is how I started my job as the coordinator of the Bundesbank advisory team in Latvia in 1992. I took the best specialists from the Bundesbank for special tasks. When working on department after department, say, the internal audit at Latvijas Banka, I took our best internal auditors from our central bank and so on. We went through nearly all the main central bank departments, usually spending one or two months on each one. After two months, I looked at what had been achieved, what—if anything—was still needed and then I could conclude the task. If Latvijas Banka wanted to see how things worked at our bank in a particular area either in Frankfurt or Mainz, we gave that opportunity.”

The New Cash Centre

“After completing the work on all the main Latvijas Banka’s departments, there came a huge task which we had not anticipated in the beginning. We knew that the Latvijas Banka’s network of branches had coped with the task of exchanging the Latvian Rouble to the Lats. The network was vast, but some of the branches were too small and needed to be closed. Gradually, it became clear that the bank lacks proper headquarters in Riga for storing and processing cash—with large strongrooms and accessibility for CITs, the cash-in-transit companies, to the central bank to withdraw or deposit cash. It was complicated to do that at the Latvijas Banka’s cash centre of that time, which was situated in the mesh of Old Town streets. So we had to find a new place to build the new branch.

Theoretical discussions and development of what became the Riga branch of Latvijas Banka in Pārdaugava [at 3 Bezdelīgu street] started perhaps as early as in 1994, but a board decision was needed first. It clearly was a huge and difficult decision that took time. In 1995–1996, Latvijas Banka found a plot of land in Pārdaugava, straight across the Daugava River from its Old Town central office. That marked the beginning of a huge project.

From Latvijas Banka it was supervised by Ms Māra Raubiško, and from the Bundesbank side the board invited Mr Manfred Wygas, one of our managers with a vast experience of building central bank branches (and their cash centres with strongrooms and all that), including the one for our Landeszentralbank in Rheinland-Pfalz in Mainz in the 1980s.

The Bundesbank colleagues were deeply involved from the first plans of the cash centre in Pārdaugava, through the whole building phase, up until the end when the new building was ready. It was a huge task, but the way it was run was very clear and precise—I remember it as a beautiful period of our cooperation. (I can also mention that to this day I still stay in touch with Mr Jānis Blūms, Head of Cash Department. At the end of 2014, as I was finishing my working life as Director General of Cash at the Deutsche Bundesbank, I also visited Latvijas Banka. When going through the bank departments, I was very glad to see how many employees still remembered our cooperation and came up to say hello.)”

From left to right: Vice President of Landzentralbank of Rheinland- Pfalz and in Saarland Leopold Bolko , Mr Helmut Rittgen, Mr Manfred Wygas
Photo: Latvijas Banka

“The new cash centres in Europe are really similar as they have similar functions, but each project is different. Yours also had talented architects and an interesting solution. It is a building with a personality! A very nice building—still to this day. In terms of functionality, the Riga branch does not differ from what is customary in any Bundesbank cash centre. Back then in some aspects Latvians outcompeted Germans, considering that the latest models of machinery were bought.

When I initially met the cashiers at the central bank branches, large numbers of people were counting, sorting, and packaging cash by hand. We at the Bundesbank had stopped manual cash processing some 10 years earlier. A modern central bank has to introduce technology which is capable of counting and sorting cash, while simultaneously recognising worn‑out or damaged banknotes and destroying those that are too worn-out—all in one go.

But it is important to calibrate how powerful the machinery you require is because it is not cheap. We assisted with our experience. It helped Latvijas Banka to avoid overspending on automation and gave an overall reduction of operational costs. The Latvian central bank could first observe how such machines work at the Bundesbank and pick models that corresponded to their needs. When Latvijas Banka bought their own machines, the Bundesbank assisted in quickly making them ready for use. A modern cash processing machinery was in operation also at the old Latvijas Banka’s headquarters in the Old Town in the 1990s, while the new cash centre was still under construction.”

Reunited as Partners with the Euro

“It is interesting to recall how at the time when the cash centre at Bezdelīgu Street was being built, the national currency in Latvia was the Lats, in Estonia the Kroon, and in Lithuania the Litas, but very early on we discussed the Euro. ‘Please’, we said, ‘we have the Euro—think about it while you are building, just to avoid doing things twice!’

Of course, nothing could be said for certain with regard to the Euro in your country back then, but the possibility that it could become a common currency for the Baltic states was worth keeping in mind when planning the new cash centre and its prospects. That was a very, very wise approach as it turned out. We had already learnt what changeover means in Latvia—from the Rouble to the Latvian Rouble and then to the Lats. We kept in mind the need for storing both the old and the new currency during the changeover, so that the new cash centre does not turn out to be too small if the Euro comes. But I would rather not discuss the details of this building as these things should best be kept confidential for cash centres.”

Mr Rittgen only sparingly mentions the practical difficulties of the life in Riga in the early 1990s such as the lack of heating in the winter or the fact that he had small children and his family was not too pleased to see him leave for longer periods. He concludes by drawing parallels between the years he coordinated the Bundesbank assistance and his involvement in the Lats storage and circulation with his final 6–7 years in the German central bank under the presidency of Dr Jens Weidmann (coincidentally, Dr Weidmann was serving his last day in office on the day we spoke with Mr Rittgen).

“During my years in Frankfurt, when I was managing the cash side, I maintained contact with Latvijas Banka, and in that position I could learn things from you again as we were working together in the eurozone as equal partners. In the end, it really seemed like a full circle: I ended up working with cash at home as I had done in Riga earlier, so I was able to pick ideas and test them on each side. As long as you live, you really can’t be sure which experience will come in handy when,” Mr Rittgen concludes with a smile.