The Effects of financial liberalisation on currency policies: The case of Turkey

The Effects of Financial Liberalisation onCurrency Policies : The Case of TurkeyBurcu BİLİRDokuz Eylul UniversityInstitute of Social SciencesDepartmant of EconomicsProgramme of Money and BankingThe idea of financial liberalisation, which has a considerable history oftheoretical basis, has become important especially after the collapse of Bretton-Woods system which was present early in 1970?s and has emanated all over theworld in the second half of 1980?s and in 1990?s. While the applications offinancial liberalisation have yielded positive results in some countries whichdesired to keep up with this process and to benefit from the advantages offinancial integration, they have caused several crisis of prohibitive economicaland social costs in many countries. This dilemma has raised more debates on theefficiency of the policies applied during this process and it has become obviousthat the subject should be analysed in further details.With the applications of financial liberalisation, the controls on capitalmovement have been removed, the developments on information andcommunication technology have enabled the movement of funds on world scalein developed countries, and the globalisation and integration of financialmarkets have been promoted. In such an environment, the interaction betweenfinancial markets has gradually accrued and foreign markets have becomeinternational. This has complicated the aplication of currency policies and hasrendered it a more demanding subject.As the process of financial liberalisation has significantly effectedcurrency policies, the ultimate goal to be achieved by the currency policy andthe instruments and strategies have been undergone a change in order toachieve this goal. In this process, price stability has become the basic purpose ofcurrency policy, and the instruments of market-based currency policy andinflation targeting strategy have become more important. In Turkey, financialliberalisation process has started in 1980 and has been gaining speed since 1989.Like many other developing countries, Turkey has been in difficulty to keep upwith the process of financial liberalisation and hasn?t been significantly effectivein the applications of currency policy.Key Words: 1)Liberalisation, 2)Financial Liberalisation, 3)Currency Policies,4)Central Bank, 5)Turkish Economyii