EU306 lecture slides 6a - Turkish Central Bank (TCMB)...

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Unformatted text preview: Turkish Central Bank (TCMB) Lesson will seek to answer the following questions: When was the TCMB formed How was the TCMB formed Why was the TCMB formed The Birth of the TCMB Central Banking born out of need to provide war financing in many states The central bank of the Ottoman State was born due to similar reasons however it was somewhat different in institutional and ownership status The Crimean War of 1853 was the beginning of the financial bankruptcy of the Ottoman Empire The Ottoman State attempted to finance the war with domestic and foreign borrowing TCMB This led to the first foreign borrowing of the Ottoman Empire 1854 the Ottoman Treasury sought long term debt in the European financial markets of London, Paris and Vienna 1863 Osmanli Bankasi (Banki Osmanii ahane) formed by British and French capital to aid in Ottoman debt repayment The Bank had the right and monopoly to print money TCMB The Bank would borrow at low interest in the European markets and increase its gold reserves and print three times the amount of its reserves and give the government capital advances in exchange for interest Although the Bank operated with profit, the Ottoman state was not allowed to share in the profit 1875 the Ottoman state declared that it would default on foreign debt 1881 Dyuni Umumiye daresi (Debt Management Administration) formed with the duty of managing the Ottoman state's foreign debt TCMB The formation of the Duyuni Umumiye daresi signaled the symbolic end of the Ottoman state This trauma helped shape the economic politics of the new Turkish republic in 1923 i.e. Avoidance of foreign debt and budget deficits These concepts also influenced the institutional structure of the central bank during 19301950 TCMB The absence of a national central bank as the symbol of economic independence became a major problem of the Ankara government especially during the War of Independence Problems created by this deficiency 19251930 : the ideological foundations of a new central bank for the new Turkish state planted The rejection of the Ottoman bank formed by foreign capital to provide war financing during WWI High inflation and the havoc it brought on society The constant depreciation of the Turkish Lira TCMB The endeavor to create the central bank brought about restlessness in the two major banks, Bankasi and Osmanli Bankasi Trkiye Bankasi supported the creation of the new institution Osmanli Bankasi, opposed the new institution because it did not want to lose its privileges in printing money and stated that the new institution should be formed with foreign capital and that the new state should provide its financial stability with foreign borrowing The General Manager of Is Bankasi, Celal Bayar, declared that he was ready to turn Is Bankasi into the new central bank TCMB Osmanli Bankasi's wishes would have led the new state to lose its economic independence The new leaders of the Republic decided to repay the Duyumi Umumiye debt without foreign borrowing This allowed for the new central bank to replace the Osmanli Bankasi which lost its priveleged status 1930 the Central Bank Law passed in the Turkish Parliament 3 October 1931 the Turkish Republic Central Bank (TCMB) formally began its operations as the 38th central bank in the world The new institution took over the government's domestic and foreign exchange and treasury operations Other central banks formed after this period: New Zealand (1933); Canada (1934); Ireland (1943); Australia (1945) Political Independence of the TCMB 1930 the Governor of the Bank Council appointed for 5 years with the option of renewal by the President of the Republic 1970 the law was changed to allow the upper level management to be appointed after the Bank Council declared the candidates and the Council decided on appointments Today the Governor of the TCMB is appointed byt eh Cabinet of Ministers and the deputies are appointed from the Governor's choice of 3 candidates Since the Governor and his deputies are not appointed at the same tme the government can shape the members of upper management Political Independence After 1987 elections the individual independence of the TCMB Governor was damaged Governor and deputies's duty period reduced to 3 years 1990 Governor's appointment period reextended to 5 years 2001 Governor's appointment period reextended to 5 years Harmonization with European Central Banking System Law (ECB's president appointed for 8 nonrenewable years) Political Independence 1930 no specific education requirement for Governor and top 4 executives 1970 mandate that Governor should have higher education with experience and knowledge in finance, economics and banking Since 1970 the Bank's Council is composed of 6 people selected by the Governor and General Council of the Bank Governor should have higher eduation in social sciences with previous experience in the public sector Deputies should have an undergraduate or graduate degree in either law, finance, economics, management or banking along with adequate experience and knowledge and at least 10 years experience Institutional Structure of the TCMB TCMB President of the TCMB Members of the Bank Council Durmu Yilmaz (since 18 April 2006) 61 y.o., public sector experience since 1980, graduate degree in economics M. Vehbi itak (since 1 May 2005) 50 y.o., lawyer with graduate degree in social sciences Do. Dr. Lokman Gndz (since 1 May 2005) 40 y.o., PhD in banking Prof. Dr. M. lker Parasiz (since 1 May 2003) 65 y.o., PhD in law and economics Necati ahin (since 1 May 2004) 53 y.o., undergraduate degree in economics Prof. Dr. Necdet ensoy (since 7 December 2006) 54 y.o., PhD in accounting Prof. Dr. Turalay Ken (since 14 April 2009) 46 y.o., PhD in economics Aims of the TCMB TCMB The primary aim and priority of the TCMB pre1986 was to support the government's development program With the changes in the foreign exchange and convertibility of the Turkish lira the aim of price stability became a major goal of the TCMB Law No. 19126 of 3 June 1986: "ekonomik gelimeye yardimci olmak amaciyla; para ve kredi politikasini, kalkinma planlari ve yillik programlar gz nnde bulundurularak ekonominin gereklerine gre ve fiyat istikrarini salayacak bir tarzda yrtmektir." TCMB 2001 new law lists the primary aim of the Bank as price stability Provided that price stability is achieved the Bank can support the government's growth and employment policies The Bank determines the inflation target with the government Coresponsibility of the government and the Central Bank The EU Progress reports criticize this aspect stating that it damages the independence of the Central Bank and does not conform to EU norms TCMB The government does not have power over the formation of the budget of the TCMB However the government must approve the TCMB's budget This limits the economic independence of the Bank The TCMB can also be audited by the Prime Ministry This is incompatible with the European Central Banking System norms ...
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