1. III. Financial World I: Money & Banking A.Monetary System & Policy

2. 1. Introduction The Real Side of Economy Economic aggregates are considered physically in terms of their actual quantities. Main part of the economy The Financial Side of Economy Its capital and accumulation is the primary mover of production process. Reflecting the developments of the real part

3. The Development Of Capitalism Establishment of Central Banks Liberalization of Financial markets & Globalization

4. Primary Functions of MoneyMoney needed for three purposes Medium of exchange Unit of account Store of wealth Transactions Speculative Precautionary

5. The Developments of CB in The World The CBsEstablishment Dates Firstly Issuing Banknotes Bank of England16941844 Banque de France18001848 Nederlandsche Bank 18141863 Banco de Portugal18461888 Banco de Espana1874 Bank of Japan18821883 Banca d’Italia18931926 TCMB1930 Kaynak: The Development of Central Banking, Nisan 1994, BOE

6. b. Historical Background of TCMB 1930-Est of CB: Money creation & management fully controlled by CB. Until 1980: CB is main sources of public financing. CB specified as a development bank and provided credits to Treasury,PEE & private bussiness. Jan 24 1980-IMF Stabilisation & Liberalisation Programme: Restructring of the money markets along more liberal lines. After 1980: Budget financing from CB gradually eliminated. Public Sector started to sell bonds and notes to have revenues. Borrowing from both domestic & foreign sources become a dominant trend. August 1989- Turning Point of Liberalisation Movement: Opening up foreign capital accounts fully and making the TL convertible.

7. c. Restructuring of Institutional Framework. A Digression: The Changing Role of The CB The primary function of the CB is, by managing the monetary variables both domestic and foreign, to accomplish price stability which in practise means achieving a targeted rate of inflation every year.

8. d. Tools of Monetary Policy For the regulation of money supply there are four primary tools that are used by the CB: Required Reserve Ratio Discount Rate Interest Rate Open Market Operation

9. Required Reserve Ratio(%) Türk Lirası Disponibilite( current rates) YükümlülüklerOranlar Vadesiz,İhbarlı Mevduatlar ve Özel Cari Hesaplar11 1 Aya Kadar Vadeli Mevduatlar11 6 Aya Kadar Vadeli Mevduatlar8 1 Yıl ve Daha Uzun Vadeli ile Birikimli Mevduatlar5 1 Yıla Kadar Vadeli Türk Lirası11 Yabancı Para( USD $ or Euro) YükümlülüklerOranlar Vadesiz,İhbarlı DTH/Yabancı Para Özel Cari Hesaplar İle 1,3,6 Aya ve 1 Yıla Kadar Vadeli DTH Hesapları 11 1 Yıla Kadar Vadeli Yabancı Para11 Kaynak: TCMB

10. RRR(%) To hold cash or near cash values according to their deposit liabilities YearsRRR(%) 19595 The 1980s10-15 198630

11. is a special type of interest that CB charges when lending money to banks. Rediscounting is done by,  Setting an upper limit  Changing of interest charged in general or for some specific sectors  Specifying the type of papers that will be accepted.

12. Open Market Operation REPO is a repurchasing agreement whereby valuable papers are sold with a specific price and are bought back at the end of a specific time, and the seller gets his money back with interest. If REPO agreement made with foreign currencies, which is called a swap. DBNS is abbreviated from domestic borrowing notes of state.

13. The CB increase the money supply That is a reverse REPO It reduces the money supply If it sells the DBNS to banks in exchange for money That is making a REPO The CB is buying the DBNS and paying a higher interest rate

14. The CB decides  The overnight borrowing and lending rates for interbank dealings.  With what is called The Late Liquid Window the rate of Borrowing and lending in Interbank Money Markets for one night  The rate of borrowing possibilities either for one night or one week for the OMO.

15. TarihBorç AlmaBorç Verme 20.02.02 57.0062.00 25.04.0341.0048.00 05.02.0424.0029.00 11.01.0517.0021.00 02.01.0613.5016.50 14.09.0717.2522.25 18.01.0815.5019.50 17.06.098.7511.25 17.07.098.2510.75 19.08.097.7510.25 17.09.106.258.75 05.08.115.009.00 21.10.115.0012.50 22.02.125.0011.50 19.09.125.0010.00 19.10.125.009.50 21.11.125.009.00 Overnight(O/N) Kaynak: TCMB

16. The Late Liquid Window TarihBorç AlmaBorç Verme 20.02.025.0062.00 15.10.035.0036.00 20.12.045.0026.00 09.12.055.0021.50 21.07.0613.5025.50 14.12.0711.7523.00 19.12.0811.0020.50 20.11.092.5012.00 17.12.100.0012.00 21.10.110.0015.50 22.02.120.0014.50 19.09.120.0013.00 19.10.120.0012.50 21.11.120.0012.00 Kaynak: TCMB

17. e. Closer Look at Aggregates

18. 20012003Değişim20012003Değiş. Varlıklar80,884.480,192.4-692.0Yüküm.80,884.480,192.4-692.0 I. Altın Mevcudu 1,5272,234707I. Sermaye0.025 0 II. İç Krediler 766.36.6-759.2II. Mevduat 45,553.256.260.810,707.6 III. Dış Krediler 263.2166.3-96.9III. Dış Krediler 11.312.10.8 IV. Açık Piyasa İş. 7,014.6433.0-6,581.6IV. Açık Piyasa İş. 12,630.38,260.1-4,370.2 V. Döviz Borçluları 27,045.846,92219,867V. Döviz Taahhütler 101.085.4-15.6 VI. Madeni Para 1.87.45.6VI. Tedavül. Banknotlar 5,282.710,675.55,392.9 Tablo 3. 2001-2003 Dönemi TCMB Bilanço Gelişmeleri(Trilyon TL)

19. Tablo 4. Main Monetary Indicators, 2005-2010.

22. B. The Banking System 1.Basics The primary funtion of the banking system is to facilitate money and credit markets. Banks collects as many assets as possible and lend them to their customers with an interest rate.

23. 2. A Brief Historical Background Until end of Second World War: Banks are publicly owned: Sümerbank,Etibank. Until 1980s Dominant banking activity was financing production and growth process for industralisation policy. During the 1970s: It was the high inflation years.The Gap btw interest rate & inflation widened 25-30 points. End of the 1970s: A new warket created openly outside the banking system called bankers or money brokers. But this practice was halted partly by administrative measures.

24. Kaynak: BDDK

27. Slides prepared by Kamer Olkay Aşık, DEU Faculty of Business, Student of Practical Training Class under guidance of Prof. Sedef Akgüngör