6 Ocak 2013 Pazar

The History of Central Banks

Popular American artist Will Rogers claimed that there have been three extraordinary inventions; fire, wheel and the central bank.[1] It is clearly seen that central bank has a very significance place not only in the economy but also in the life. Behind this perception, central bank is seen as an engine which enables the economy to operate. According to this idea, a central bank fundamentally tries to sustain the price stability and supports the economic policies of the government.[2] If we want to define price stability, we can say that an inflation level in which the people do not pay attention to the price increases for their investment or saving decisions.[3]  

To sustain the price stability, central banks must control the money supply and the credit demand in the economy.[4] They must also follow the inside and outside economic and social happenings and make forecasts about short terms and the long terms. If there is negativity in the economy, a recession may happen. Recession causes a deceleration in the real sector and it affects the other sectors. In this kind of environment the central banks may increase the money supply and decrease the credit interest rates to boost the economy. On the other hand, if there is a risk of hyper inflation the central bank should withdraw money from the economy by increasing the interest rates that may cause a rise in the unemployment rates.

It is obviously seen that, the role of central banks in the economy is very crucial. They must understand the priorities of the economy and make policies according to this. The governments must not interfere to the decisions of the central banks and they should understand that the economy must be managed by the economists and the specialists working for this instution. The government should not be on the decision side, they should only give advices if the central bank management needs.

The History of Central Banks in the World
First central banks were founded after the transformation of the commercial banks in some countries. The first bank which shows the characteristics of a central bank is the Swedish State Bank which was founded in 1668.[5] This bank was the first bank which gives banknote instead of coins to the customers who discounted their promissory notes.[6] Nevertheless, because of the effect of United Kingdom in international policies in 17th century and the advanced level of the financial sector in this country, bank of England which was founded in 1694 is accepted to be the first central bank in the history. 

After the foundation of Bank of England and the demand for money have increased, the needs to the central banks were also increased. The following banks had been founded respectively:[7]
·         1800: Banque de France (Central Bank of France)
·         1814: De Nederlanche Bank (Central Bank of Nederlands)
·         1817: The Oesterreichische Nationalbank and Norges Bank (National Bank of Austria and Bank of Norway)
·         1850: Banque Nationale de Belgique (National Bank of Belgium)
·         1860: Bank of Japan
·         1893: Banca d'Italia  (Italian Central Bank)
·         1913: Federal Reserve Bank of USA.[8]

It can be seen that the foundations of important central banks were happened in the 19th century. In this development both the financial needs after the industrialization and the effects of Peel Act[9] played a great role.[10]After the associated act, the banks operating in England were forced to open accounts in Bank of England. Therefore this bank started to serve as a bank of the banks.[11]

In the early 20th century, the financial requirements were increased very much after the First World War. In 1920, after the conference held in Brussels, the countries were supported to found their own central banks. Afterwards, whatever financial or political systems they have, almost all countries founded a central bank in order to organize the money supply.[12]

History of TCMB
As mentioned in the above section, the industrilization affected many countries in the world and Ottoman Empire was one of them. Like in many countries the financial requirements of the government and the real sector were increased in Ottoman Empire. To overcome financial problem, some banks were founded but their life had not been long. Except from these banks, Ottoman Bank was founded by English capital to allocate small amount loans both to the real sector and the government and to discount the treasury bills.[13]

Due to the capital of English and French share holders, Ottoman Bank did not serve well in the First World War. This event increased the protests again this bank but regardless of these complaints the modern Republican administration extended the period of privilege of the Ottoman Bank until 1935. Nevertheless, in the same period the preparations had been undertaken to set up a central bank since 1926. The act on the Central Bank of the Republic of Turkey was enacted on June 11, 1930. The Bank was opened officially on January 1, 1932.[14]This act had been amended in 1970 and in 2001.

When the first act was enacted in 1930, it was seen that the title of the bank was “Türkiye Cumhuriyet Merkez Bankası”.  Since the title does not include “Türkiye Cumhuriyeti” expression, it gives a clue for the independence of this central bank. With this expression the central bank can be said to be established not to take orders from the government at that time.

[1]Economist, “Monetary Metamorphosis”, http://economist.com/surveys/displayStory.cfm?story_id=242113,
[2]1211 Numbered Turkish Republic Central Bank Act, Article.4.
[3]TCMB, “Fiyat İstikrarı”, http://www.tcmb.gov.tr/yeni/evds/konusma/tur/2002/konusma.php.
[4]Paul A. Samuelson, İktisat, İstanbul, Menteş, 1970, p. 346.
[5]Mehmet Takan, Bankacılık Teori, Uygulama ve Yönetim, Ankara, Nobel, 2001, p. 3.
[6]Murat Kaykusuz, “Merkez Bankasının Bağımsızlığı ve Enflasyon Arasındaki İlişki”, http://kaykusuz.tripod.com/id44.html.
[7]Takan, p. 27.
[8]Moneyfactory, “ABD Dolarının Tarihçesi”, http://origin.moneyfactory.com/newmoney/files/10_materials/translated/Milestones_tr.pdf.
[9]Peel Act: The act which is accepted in 1844, expanded the authority of Bank of England.
[10]Jeffrey Herbener, “The Root of Economic Evil”, http://www.mises.org/freemarket_detail.asp?control=248&sortorder=title.
[11]Takan, p. 26.
[13]TCMB, “Tarihçe”, http://www.tcmb.gov.tr/yeni/banka/tarihce.html.
[14]TCMB, “Tarihçe”.

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