EC 470 PRESENTATION NO:1
TCMB AND
MONETARY
POLICIES
EARLY
REPUBLICAN ERA
19231930
EARLY REPUBLICAN ERA (1923-1930)
1920S
▸ Currency Problem : Expansionary monetary policy (coin)
▸ First expansionary monetary policy regulation (1924)
▸ In 1927, government started to mint its own money for the
first time (Ottoman Bank).
▸ Until CB was established many were invited to take advice.
▸ Lack of credits to fund establishment of CB.
NOT SO “CENTRAL”
BANK
19301980
NOT SO “CENTRAL” BANK (1930-1980)
1930s
NOT SO “CENTRAL” BANK (1930-1980)
1930s
‣ Inflation average : %0.7
‣ During the second term of 30s CB expanded monetary base even
further.
‣ Positive real interest rate
‣ In 30s CB cannot determine deposit and lending interest rates,
limited use of monetary tools.
‣ Because of the fixed exchange rate regime we pegged our money to
British pound.
NOT SO “CENTRAL” BANK (1930-1980)
NOT SO “CENTRAL” BANK (1930-1980)
1940s - Cost of staying neutral
‣ Expansion
‣ Printing Money to close deficits caused by WWII.
‣ Money Supply increase
‣ Inflation ( 0.7 %
13.3 % ) : Diminishing Supply & Monetary
Expansion
‣ TÜFE greater than 50%
‣ (X-M) increase as demand for imports decrease and price of
exports increase: cause increased gold reserves.
‣ Devaluation : 113% ( Increased government debts to CB )
‣ 1947 : First Reserve Ratio Requirement
NOT SO “CENTRAL” BANK (1930-1980)
INFLATION RATES
NOT SO “CENTRAL” BANK (1930-1980)
1950s - First Populism Experience
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Expansion
New regulations to use CB resources
Minting to balance government budget
1950-53: Golden Age of DP
Post Korean War: Price of Exports fall
‣ -Populist- Short Term, non-performing loans to farmers via
TMO.
Money Supply increase, Inflation increase, lack of foreign currency
IMF seeks devaluation: DP waits until 1958 -elections in 1957USD/TL 2.80 to 9.
Post IMF: BOP Deficit Decrease, Inflation Decrease BUT economy
stagnate
1960: Coup d’état
NOT SO “CENTRAL” BANK (1930-1980)
1960S
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Expansion
1961 : Required reserves are held in CB
Low levels of inflation ( compared to 50s )
Price stability achieved : inflation never exceeds 10%
1960 : DPT established
Subsidies , cheap credit and FX provision for industrialists
Military rule followed by the reign of AP
Expat workers : FX used to finance BOP deficits .
No devaluations .
NOT SO “CENTRAL” BANK (1930-1980)
1970S
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Increased CB authority
1970 devaluation USD/TRY from 9 to 15.
Inflation 11.8% (1970)
62% (1979)
Imported inflation due to high oil prices
Money Supply 27% (1970)
61(1979)
1971: Nixon abolishes gold standart, end of Bretton
Woods system .
‣ Free float of currencies .
‣ Oil shocks : global economy slowing down , foreign debt
.
NOT SO “CENTRAL” BANK (1930-1980)
1970S
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Negative real interest rate
Twin Deficits Problem
“70 Cente muhtaç ülke”
1974 Cyprus Campaign leads to FX outflow.
Expat workers’ FX flow slows down after 1975
Short term, high interest debt.
1978-79: shortages, inlation climbs to %100.
«Yağ, gaz kuyrukları».
NOT SO “CENTRAL” BANK (1930-1980)
INFLATION
NOT SO “CENTRAL” BANK (1930-1980)
EXCHANGE RATE
FINANCIAL
LIBERALIZATION WAVE
AND CENTRAL BANK
19802002
FINANCIAL LIBERALIZATION WAVE AND CENTRAL BANK (1980 -2002)
1980S
‣ Structural changes mainly through January 24 legislations and 1980-1983 IMF
Stand-by program.
‣ 32,7% devaluation of TL
‣ Anti-inflationist measures such as
‣ Reduction in government spending(reducing subsidies etc.)
‣ Leaving interest rate to the market (interest race betweeen banks =>
Banker’s Crisis)
‣ Decreasing money supply
‣ Daily exchange rate declaration by CB
‣ 1986 : Interbank money market (short-term liquidity needs)
FINANCIAL LIBERALIZATION WAVE AND CENTRAL BANK (1980 -2002)
FINANCIAL LIBERALIZATION WAVE AND CENTRAL BANK (1980 -2002)
INFLATION
FINANCIAL LIBERALIZATION WAVE AND CENTRAL BANK (1980 -2002)
FINANCIAL LIBERALIZATION WAVE AND CENTRAL BANK (1980 -2002)
1990S
‣ 1989 : Capital account liberalization
‣ 1994 : Economic crisis (unsustainable nature of the fiscal policy)
‣ The government announced a new stabilization program on April 5,
1994.
‣ Devaluation of TL (51%)
‣ 1999 IMF Stand-by Program (lowering inflation and reducing interest rates)
‣ 2001 February Crisis, a huge jump on Interbank
interest rates.
Did You Know
95-96 : Least valuable currency
FINANCIAL LIBERALIZATION WAVE AND CENTRAL BANK (1980 -2002)
FINANCIAL LIBERALIZATION WAVE AND CENTRAL BANK (1980 -2002)
INFLATION
FINANCIAL LIBERALIZATION WAVE AND CENTRAL BANK (1980 -2002)
FINANCIAL LIBERALIZATION WAVE AND CENTRAL BANK (1980 -2002)
INTEREST RATE
FINANCIAL LIBERALIZATION WAVE AND CENTRAL BANK (1980 -2002)
FOREIGN TRADE BALANCE
AKP GOVERNANCE
20022016
AKP GOVERNANCE (2002-2016)
MONETARY POLICY (2002-2009)
AKP GOVERNANCE (2002-2016)
INFLATION TARGETS VS REALITY
AKP GOVERNANCE (2002-2016)
INTEREST RATE
AKP GOVERNANCE (2002-2016)
FOREIGN EXCHANGE RESERVES
AKP GOVERNANCE (2002-2016)
RESERVE REQUIREMENT RATIO
AKP GOVERNANCE (2002-2016)
EXCHANGE RATE
AKP GOVERNANCE (2002-2016)
MONETARY POLICY (2008-2016)
‣ The foreign exchange rate is neither a target, nor a policy
tool in the floating exchange rate regime. Exchange rates
are determined according to the supply and demand
conditions in the market.
‣ CB decided to increase the liquidity in the market through
deposit and repo transactions.
‣ After Turkish Lira seriously devalued against dollar CB
decided to increase foreign auctions to defend lira.
‣ Foreign Exchange rate reserves are getting smaller.
AKP GOVERNANCE (2002-2016)
INFLATION TARGETS VS REALITY
AKP GOVERNANCE (2002-2016)
INTEREST RATE
AKP GOVERNANCE (2002-2016)
FOREIGN EXCHANGE RESERVES
AKP GOVERNANCE (2002-2016)
RESERVE REQUIREMENT RATIO
AKP GOVERNANCE (2002-2016)
EXCHANGE RATE
AKP GOVERNANCE (2002-2016)
M1
AKP GOVERNANCE (2002-2016)
M2
AKP GOVERNANCE (2002-2016)
M3
AKP GOVERNANCE (2002-2016)
CENTRAL BANK GOALS (2014-2018)
AKP GOVERNANCE (2002-2016)
IS CENTRAL BANK AUTONOMOUS ?
BIBLIOGYRAPHY
‣ http://www.tcmb.gov.tr. Last revised on 24 March 2016.
‣ The World Bank: World Development Indicators Database. Turkey Last revised on
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24 March 2016.
Economic Outlook 2002-2011 & 2011-2017". Türkiye İstatistik Kurumu. 2012. Last
revised on 23 March 2016.
http://www.guvencetin.com/ekonomi/TurkiyeEkonomisiTarihi.pdf. Last revised on
23 March 2016
Türkiye’nin 200 Yıllık İktisat Tarihi - Şevket Pamuk
The Genesis of Planning - Vedat Milor
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BERIL ODABAŞI
BURCU TEBERIK
BUĞRAHAN
ÇILSAL
MEHMET MISOĞLU FURKAN
NARINOĞLU
MUSTAFA DUMAN