Central Bank reserve management: The Turkish case

It is quiet customary for many countries demanding foreign reserves against balance-of-payment problems, for foreign debt payments, for defending the nationa currency against foreign currencies, for country's prestigious, against emergency economic conditions, and for a contribution to the future generations' wealth. However, foreign reserves have social costs as well as benefits cited above. Therefore, "optimum reserve requiremet" and "reserve management" have become important subjects in the recent years. Since reserves are in the responsibility of central banks, central banks are under obligation for development of "strategies for reserve management". Because, central banks are faced with a number of risks during the managenet of reserves, namely, market risks, credit risks, operational risks, and liquidity risks. As a developing country, Turkey is subject to balance-of-payments problem and foreign financial investment in the recent years. Therefore, Turkey should demand foreign reserves for both balance-of-payment problem, foreign debt payments and in order to defend national currency. Strategies for reserve management have become important and the Central Bank of Turkey has determined " reserve management portfolio" and "investment strategy" annually. This requires a careful analysis of the world and Turkish economy. "central Bank independency" policy makes a significant positive contribution to the strategy of the Central Bank of Turkey. This dissertation analysis the above discussions: reasons for central banks demand foreign reserves, the reserve composition of the Central Bank of Turkey, Turkey's optimum reserve management policy, risk policy, strategies for reserve management, reserve requirements, social costs of reserves, and the effects of Central Bank independency on reserve management. At the end, a general analysis is provided. Keywords: Central bank reserve management, central bank reserve composition, reserve requirements, optimum reserve, central bank independency.