Reserve option mechanism

As the financial markets began to become global and integrated, capital flows became more dynamic and made the economic systems which they entered much more fragile. This situation has led Central Banks to give importance to selection and use of monetary policy instruments. After the 2008 global crisis, the idea that a monetary policy which just focused on price stability could not eliminate the risks accumulated in the financial system. Global crisis has led central banks into a change in the paradigm and had to make radical changes in monetary policy instruments. Within the framework of the financial stability target, CBRT has taken a number of measures. The main objective of this study is to examine the impact of the use of Reserve Option Mechanism on financial stability with related variables, which was introduced as a monetary policy tool to ensure financial stability in 2010. In the past, when the financial markets were intervened with traditional monetary policy tools, these practices were diversified and new monetary policy instruments were introduced in response to the volatility experienced in financial markets. CBRT has started to use Required Reserve Ratios more effectively in the period of exiting from the global crisis. In the last period, CBRT decided to limit the negative effects of excessive volatility on the financial stability, strengthening the CBRT's gross foreign exchange reserves and provide more flexibility in liquidity management for banks. In this study, after examining the functions of Central Banks from the historical perspective, the results of monetary policy applications will be revealed. The aim of the study was to measure the positive contribution of the Reserve Option Mechanism on financial stability.