Central Bank of the Republic of Turkey
In 1840, the Ottoman Empire put cash banknotes into circulation for the first time. These notes carried the name Kaime-i nakdiye-i mutebere in Ottoman Turkish. Before this moment, economic activities like money and credit transactions were handled by various establishments such as jewelers, moneylenders, foundations, and guilds. The Treasury minted gold coins on behalf of the Sultan during that era.
During the Crimean War in 1854, the Ottoman Empire borrowed from other nations for the first time in history. This need for external funding required a state bank to assume an intermediary function in repaying debts. As a result, the Ottoman Bank headquartered in London was established with English capital in 1856. Its fundamental powers remained limited to lending small amounts and making advance payments to the Government.
The Imperial Ottoman Bank emerged in 1863 as an English-French partnership under a new name. It received the sole privilege of issuing banknotes for thirty years. Acting as Treasurer of the State, it collected revenues and made interest payments on domestic and foreign debts. Capital retention by other nations triggered reactions over time. These reactions laid the foundation for establishing a national central bank.
Efforts toward establishing a central bank with domestic capital culminated in the establishment of the Ottoman National Credit Bank on the 11th of March 1917. However, the defeat of the Ottoman Empire in the First World War prevented this bank from becoming a true national bank.
Deliberations about establishing a central bank gained pace after the First World War. The global trend of nations formulating monetary policies independently drove these discussions. Political independence gained during the War of Independence needed reinforcement through economic independence. The issue first appeared at the 1923 Izmir Economic Congress with emphasis on founding a national state bank.
In 1927, Minister of Finance Abdülhalik Renda submitted a draft bill on establishing a central bank. Following enactment of the law, Turkey exchanged views with central banks of other countries. Gerard Vissering visited Turkey in 1928 as a member of the Central Bank of Netherlands board of governors. His report highlighted the necessity of an independent central bank not affiliated to the Government.
Italian expert Count Volpi suggested that establishing a central bank was necessary to ensure stability of the Turkish currency in 1929. The government took initiative to draft the legal framework for the establishment of a central bank. Prof. Leon Morf from the University of Lausanne contributed to preparing the draft.
The Grand National Assembly of Turkey enacted the law on the 11th of June 1930. It published under the name The Law on the Central Bank of the Republic of Turkey No. 1715 in the Official Gazette of the 30th of June 1930. The Central Bank started functioning on the 3rd of October 1931 after centralizing duties carried out by various institutions.
Law No. 1211 accepted on the 14th of January 1970 adjusted the Central Bank to global changes occurring after the Second World War. This legislation brought significant changes to the legal status, organizational structure, duties and powers of the Bank. The capital increased from TL 15 million to TL 25 million as per the joint stock company status.
It became stipulated that the Treasury's share should not constitute less than 51 percent of the capital under this new law. Mr. Naim Talu became the first governor to assume the title Office of the Governor founded to ensure equivalence in international representation. A decision-making body composed of the governor and vice governors was established under the name executive committee.
The Board of Directors transformed into the Board consisting of six members instead of eight. General Assembly of Shareholders renamed itself General Assembly while Board of Auditors became Auditing Committee. The General Directorate changed its name to Head Office. Control over direct and indirect monetary policy instruments extended significantly during this period.
The Bank gained authorization to conduct open market operations to regulate money supply and liquidity. Government had to consult the Central Bank when taking measures regarding money and loans. Upper limit for short-term advances to the Treasury increased to 15 percent of budget allocations pertaining to respective years.
Price controls abandoned on the 24th of January 1980 sparked structural transformation in the Turkish economy. Free trade policy adopted alongside financial liberalization process ensured infrastructure implementation for monetary and exchange rate policies. Interest rates on deposits and loans determined by market conditions rather than government decree.
Fixed exchange rate system abandoned with Turkish currency devalued against foreign currencies. In 1983, the Bank empowered to manage gold and foreign exchange reserves effectively. Incorporation into law stated that fundamental duties would comply with basic economic requirements and objective of achieving price stability.
Central Bank started conducting open market operations in 1987 becoming pioneer in establishing money and foreign exchange markets in modern sense. Decree No. 32 on Protection of Value of Turkish Currency declared currency convertible in 1989 allowing relatively more flexible exchange rate regime.
Monetary program announced for first time in 1990 aimed to meet liquidity requirement without endangering stability of exchange rates and interest rates. Targets achieved yet problems like Gulf War pressure on financial sector hindered macroeconomic stability leading to financial crisis in first quarter of 1994. Limitations imposed on Treasury use of Central Bank funds on the 21st of April 1994.
Uncontrollable inflation paved way for adoption of exchange rate based new stability program in year 2000. Crisis broke out mid-2001 amid aggravating loss of confidence starting end of 2000. Free floating exchange rate regime adopted on the 22nd of February 2001 following this collapse.
Significant amendments made to CBRT Law on the 25th of April 2001 during structural transformation process. Primary objective explicitly described as achieving and maintaining price stability within scope. Bank determined monetary policy at own discretion regarding instruments it would implement thus gaining instrument independence.
Law stipulated that Bank would support growth and employment policies of Government without conflicting with price stability objective. Achieving financial stability described as supportive objective of the Bank. Prohibition established against granting advances or extending credit to Treasury and public establishments from primary market debt instruments.
Two-stage monetary reform launched upon achieving progress in disinflation process to emphasize determination in efforts. Reform aimed enhancing credibility of Turkish currency eliminating problems arising from high denomination. First stage removed six zeros from Turkish lira putting New Turkish lira banknotes into circulation from the 1st of
January 2005 onwards.
Coins of New kuruş also put into circulation alongside new banknotes during this initial phase. Second stage launched on the 1st of January 2009 removing prefix New used on New Turkish lira and New kuruş names.
Turkish lira banknotes and coins circulated with new designs and sizes following completion of second reform stage. This process emphasized Bank's determination in efforts while enhancing credibility of national currency throughout population.
CBRT functions as joint stock company with capital divided into 250,000 shares totaling 25,000 Turkish liras. Shares distributed across four classes according to Central Bank Law of Turkey regulations. Class A shares allocated solely to Turkish Ministry of Finance and Treasury representing majority ownership stake.
Class B
shares allocated to national banks operating within Turkey boundaries. Class C shares distributed among banks other than national banks and privileged companies. Class D shares assigned to Turkish commercial institutions plus real and legal persons of Turkish nationality.
As end of 2018 reached class A shares constituted 55.12 percent of CBRT capital while class B, C and D shares made up 25.74 percent, 0.02 percent and 19.12 percent respectively. Governor appointed for four-year term by decree of President of Turkey allowing reappointment upon expiration.
Board composed of governor and six members elected by General Assembly serving three-year terms. One third board members replaced each year ensuring continuity while bringing fresh perspectives. Monetary Policy Committee chaired by governor includes deputy governors plus additional members elected from board or appointed with approval of President of Turkey on recommendation of governor.
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Common questions
When was the Central Bank of the Republic of Turkey established?
The Central Bank of the Republic of Turkey started functioning on the 3rd of October 1931 after centralizing duties carried out by various institutions. The Grand National Assembly of Turkey enacted the law establishing it on the 11th of June 1930.
Who founded the Central Bank of the Republic of Turkey and when did they submit the draft bill?
Minister of Finance Abdülhalik Renda submitted a draft bill on establishing a central bank in 1927. Prof. Leon Morf from the University of Lausanne contributed to preparing the legal framework for its establishment.
What is the primary objective of the Central Bank of the Republic of Turkey according to the 2001 amendments?
The primary objective explicitly described as achieving and maintaining price stability within scope. Law stipulated that Bank would support growth and employment policies of Government without conflicting with price stability objective.
How many shares does the Central Bank of the Republic of Turkey have and how are they distributed?
CBRT functions as joint stock company with capital divided into 250,000 shares totaling 25,000 Turkish liras. Shares distributed across four classes where Class A shares allocated solely to Turkish Ministry of Finance and Treasury representing majority ownership stake.
When was the first monetary reform launched by the Central Bank of the Republic of Turkey to remove zeros from currency?
First stage removed six zeros from Turkish lira putting New Turkish lira banknotes into circulation from the 1st of January 2005 onwards. Second stage launched on the 1st of January 2009 removing prefix New used on New Turkish lira and New kuruş names.