CBRT - Central Bank of Republic of Turkey ECON 311 Elif...

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Unformatted text preview: Central Bank of Republic of Turkey ECON 311 Elif AKBOSTANCI History and Background E. Akbostanci Econ 311 2 Pre CBRT Period- Ottoman Era In the Ottoman Empire, the Treasury operations, money and credit transactions and the trade in gold and foreign currencies were executed by the Treasury, the Mint, jewelers, money lenders, foundations and guilds. In 1847 the Ottoman Government allowed Galata Bankers to set up the "Bank of Dersaadet" as a bank which assumed the external payments of the Ottoman Empire. In 1856 the "Ottoman Bank" was established jointly with French and English capital and in 1863 partly assumed the functions of contemporary central banking after becoming a state bank under the name of "Imperial Ottoman Bank". The Imperial Ottoman Bank enjoyed the right and monopoly of issuing banknotes. Equipped with this power, the Bank would act as the Treasurer of the State, collect the State revenues, perform the payments of the Treasury and discount Treasury bills as well. The interest and principal payments regarding domestic and foreign debts would be made by the Ottoman Bank only. E. Akbostanci Econ 311 3 Foundation the CBRT-Republican Era The Republican administration extended the period of privilege of the Ottoman Bank until 1935. The Law on the Central Bank of the Republic of Turkey No: 1715 was enacted on June 11, 1930. The Bank was established on October 3, 1931 as a joint stock company under the title "T.C. Merkez Bankasi" and opened officially on January 1, 1932. The Bank had, originally, an exclusive privilege of issuing banknotes for a period of 30 years. In 1955 this privilege was extended until 1999. Finally it was prolonged indefinitely in 1994. Econ 311 E. Akbostanci 4 Initially it was founded as to minimize the influence of the the Treasury, and Treasury ownership was kept at only 15%. Later in 1970 with a new law Treasury's share in CB ownership was raised to 51%. Total capital of the CB is 25 YTL. It is divided into 250000 shares (each has a value of 0.1 kuru). The Bank's capital could only be increased by government approval. Shares of the CB are divided into 4 classes: Class A: These belong to the Treasury and does not constitute less than 51% Class B: These are allocated to the national banks Class C: A maximum of 15 000 (6%) shares are allocated to banks other than national banks and to companies possessing certain privileges. Class D: These are allocated to commercial institutions and to legal and real persons of Turkish nationality. Econ 311 5 E. Akbostanci Organization and Structure of the CBRT E. Akbostanci Econ 311 6 E. Akbostanci Econ 311 7 General Assembly (Genel Kurul) The GA is composed of the shareholders and convenes once a year. Each person owning ten shares or representing this number of shares shall be entitled to one vote. The Governor acts as the chairman of the General Assembly The GA examines the annual report submitted by the Board and the report of the Auditing Committee. Also examines and approves the balance sheet and the income statements of the Bank. Econ 311 8 E. Akbostanci The Board is composed of the Governor and six members to be elected by the General Assembly. One third of Board members is renewed each year. Some of the duties of the board are: To prepare the budget, annual report, balance sheet, income statements and the agenda of the GA of the Bank, To make decisions concerning monetary policy to be implemented and monetary policy instruments to be utilized in compliance with the monetary policy strategy and inflation target, To set forth regulations and to make decisions for, the replacement of banknotes in circulation, as well as their withdrawal from circulation and their destruction, among others. E. Akbostanci Econ 311 9 Board (Banka Meclisi) Monetary Policy Committee (Para Politikasi Kurulu) The Monetary Policy Committee, under the chairmanship of the Governor, is composed of Vice Governors, a member to be elected by and from among the Board members and a member to be appointed by a joint decree on the recommendation of the Governor. The Undersecretary of the Treasury or Deputy Undersecretary to be designated by him/her may participate to the meetings without the right to vote. Monetary Policy Committee membership terminates when the term of office of the Governor, Vice Governor and the Board member comes to an end. E. Akbostanci Econ 311 10 Duties of the MPC (PPK) are: To determine the principles and strategy of monetary policy in order to achieve and maintain price stability, To determine the inflation target together with the Government within the framework of the monetary policy strategy, To provide information to the public in line with the principles set forth, and provide information to the Government within specified periods by preparing reports regarding monetary policy targets and its implementations, To take necessary measures in order to protect the domestic and international value of Turkish Lira and to establish the exchange rate policy in determining the parity of Turkish Lira against gold and foreign currencies jointly with the Government. E. Akbostanci Econ 311 11 Auditing Committee Members of the Auditing Committee are elected as follows: 1. One member by shareholders of class (A), 2. Two members by shareholders of classes (B) and (C), 3. One member by shareholders of class (D). Each share within the classes shall be entitled to one vote. Members of the Auditing Committee serve for a term of two years. The Auditing Committee supervises all the operations and accounts of the Bank. The Office of the Governor is obliged to furnish all the information and documents requested by the Auditing Committee. E. Akbostanci Econ 311 12 Governor and Vice Governors The Governor is appointed for a term of five years by a decree of the Council of Ministers and may be reappointed at the expiration of this term. The Governor is required to have received a higher education and to have acquired knowledge and experience in the fields of finance, economics and banking. Four Vice Governors are appointed to assist the Governor. Vice Governors are appointed by a joint decree for a period of five years on the recommendation of the Governor from among persons who have received a bachelors or a masters degree and acquired adequate knowledge and experience in one of the fields of law, finance, economics, business administration and banking. They are required to have worked in their professions for at least ten years. Vice Governors may be reappointed at the expiration of this term. Econ 311 E. Akbostanci 13 Executive Committee The Executive Committee is composed of the Vice Governors under the chairmanship of the Governor. In cases in which the Governor is unable to chair, the Vice Governor designated by him/her will preside over the Executive Committee. Among duties of the EC are: preparing proposals to be submitted to the Board, by examining in advance the issues subject to Board decision, when deemed appropriate by the Governor; ensuring coordination in the operations of the Bank E. Akbostanci Econ 311 14 E. Akbostanci GOVERNOR : Durmu Yilmaz MEMBERS OF THE BOARD M.Vehbi itak Dr. Lokman Gndz Prof. Dr. M. lker Parasiz Necati ahin Prof. Dr. Necdet ensoy Prof. Dr. Turalay Ken MEMBERS OF THE AUDITING COMMITTEE Mehmet Tfeki Mustafa Saim Uysal Abdullah Yalin Prof. Dr. Ekrem Yildiz VICE-GOVERNORS Assoc. Prof. Erdem Bai Burhan Gklemez Assoc. Prof. Mehmet Yrkolu Dr. M. brahim Turan MONETARY POLICY COMMITTEE Durmu Yilmaz Assoc. Prof. Erdem Bai Burhan Gklemez Dr. Mehmet Yrkolu Dr. M. brahim Turhan Prof. Dr. Turalay Ken Prof. Dr. Abdullah Yava Econ 311 15 Goals and Duties of the CBRT The new amendment of the CBRT law in 2001 states the primary objective of the Bank as to achieve and maintain price stability. The CB is to determine on its own discretion the monetary policy that it will implement and the monetary policy instruments that it will use to achieve this primary goal. The CB provided that it will not be in conflict with its primary objective of price stability may support the economic growth and employment policies of the government. The recent changes in the CBRT Law increased the independence of the CB by giving the bank the instrument autonomy. E. Akbostanci Econ 311 16 Credit to the public sector, short-term advances and credit extension to Treasury and to other public institutions are terminated by the new law. Besides it was also prohibited for the CB to purchase securities issued by the Treasury or other public institutions from the primary market. This way monetization of the government debt is prohibited. E. Akbostanci Econ 311 17 Functions of the CBRT Has the privilege of issuing banknotes Determines the inflation target with the government and adopts appropriate monetary policy which is inline with this target Utilizes monetary policy instruments with the objective of achieving and maintaining price stability. As the lender of last resort extends credit to the banking sector. In order to monitor financial markets it is authorized to gather statistical information from banks and other financial institutions. Econ 311 18 E. Akbostanci Duties of the CBRT Carry OMO's. Take necessary measures to protect the domestic and international value of TL and establish an exchange rate policy jointly with the government. To determine the procedures and conditions of reserve and liquidity requirements. To conduct rediscount and advance transactions. To manage gold and foreign exchange reserves of the country To regulate the volume and circulation of TL. To take precautions for enhancing the stability of the financial system and to monitor the financial markets. To determine the terms and types of deposits in banks and the terms of participation funds in special finance houses. Econ 311 19 E. Akbostanci ...
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