Historical Sketch

In the late 13th century, Osman I established a principality (beylik) in western Anatolia, laying the foundation for the Ottoman dynasty. The title "sultan (padishah)" was adopted during the 14th century. The expansion throughout Anatolia culminated in the conquest of Constantinople and destruction of the Byzantine Empire in 1453. With the conquest of Cairo in 1517 the Ottomans took over the Caliphate from the Abbasids. In the second half of the 19th century, the financial situation of Ottoman Empire had weakened to a degree that territorial disintegration could no longer be prevented. In the Balkan Wars, the European foothold got lost almost completely. The defeat in World War I had stripped away all other territories and even threatened the Turkish heartland. Only in 1925, the current territory got secured in the Treaty of Lausanne. The sultanate had already been abolished in 1922 when Turkey was proclaimed a republic. The consolidation of the state was the starting point for a thorough modernization with the abolition of the Caliphate in 1924 and the switch from Arabic to Latin writing in 1928.

Monetary History Overview

In the 17th century, during the reign of Sultan Suleiman II, the silver Piastre was redefined as the standard coin of the Ottoman Empire. In the following period, the circulating medium steadily deteriorated through repeated debasing to the point that in the early 19th century only subsidiary coins in billon and copper were produced. Various foreign trade coins in gold and silver, such as the Venetian Ducat and the Maria Theresa Thaler had entered the market through trade and were commonly used in payment transactions. In a first attempt at improving the monetary situation, Sultan Mahmud II decreed the issuance of new gold and billon coins in 1834 with a nominal fixed rate. The comprehensive coinage reform followed in 1844 under his successor, Sultan Abdul Majid. The minting facility was modernized and the gold and silver coins all carried denominations in Turkish Piastre, making it a fully bimetallic currency. For the first time since long, circulating specie coins in gold and silver were issued again. However, the older coins were not withdrawn and continued to dominate the payment transactions. In the course of the monetary reform, the government also began issuing interest-bearing treasury bonds. The first bonds of 1840 had high denominations and were issued moderately. This changed in 1852, when the interest was abandoned and smaller denominations were added. The subsequent overissuance led to a depreciation of the de facto paper currency and to its ultimate withdrawal in 1862. The exchange occurred on par but only 40% of the value was re-issued in cash, the rest got transformed into a state loan. During the 1850s foreign commercial banks were admitted to the Turkish market, and in 1863, the London-based (Imperial) Ottoman Bank obtained the mandate as central bank with exclusive right to issue paper money. This led to a decade-long stablization of the monetary and financial situation. In 1875, triggered by military conflicts, the Turkish finances collapsed and the government declared bankrupcy and stopped serving the debt. The issuance of treasury bonds was resumed, which immediately depreciated due to over-issuance. They were recalled after 1878 already at a loss of the holders who received 25% of the nominal value or less. In 1875, the Imperial Ottoman Bank had already taken over the Turkish financial administration. In 1881, the financial tutorship became comprehensive when the Ottoman Debt Administration by major European powers took control over the Ottoman finances and kept it until the end of the empire. On the monetary side, Turkey abandoned bimetallism in 1880, when the Lira of 100 Piastres became the base of the gold standard. The silver coinage was devalued against gold and in the following, fluctuated both in time and regionally. In 1916, the Ottoman government passed the law for the unification of the currency across the empire. It reconfirmed the gold specie standard although it had de facto been abolished two years ago. After the breakout of World War I, convertibility of the government paper money was lifted, which led to an immediate depreciation by a factor of two. The continued over-issuance of state paper further lowered the value of the paper money until it reached around 10% of specie. The notes of the Ottoman Bank depreciated to a much lower extent since their issuance remained moderate. The Turkish Republic inherited a desolate monetary situation and could not improve it due to the ongoing warfare. End of 1925 finally, the issuance of new state paper money was legislated whereby the unit of account unit was changed from the Piastre to the 1st Turkish Lira. The first notes were issued end 1927. The value of the currency had mostly stabilized, but was still fluctuating since no institution existed which could impose an exchange rate policy. In February 1930, the government temporarily assumed this role and three months later, passed a central bank law. The Lira got pegged to gold in mid-1930, while the new central bank took until October 1931 to open up for business. In 1936, Turkey left the gold standard like other European countries and established a Sterling peg. After the Second World War, the Lira got devalued by more than 50% and repegged to the US Dollar. Further devaluations were done in 1960, by almost 70%, and in 1970, by another 40%. The Dollar peg got abandoned in May 1974, which immediately sent the Lira into a decline that went on throughout the 1980s and 1990s with annual depreciations of 35% in average. In the early 2000s, the Lira could finally be stabilized, at that time, the exchange rate against the US Dollar had blown up by a factor of 100'000. In January 2005, a currency redenomination was carried out. Six zeros were cut, and the 2nd Turkish (New) Lira became the new unit. It remained mostly stable for a decade until the mid-2010s when another round of depreciation has set in, which has even accelerated in the 2020s.

Türkiye joined the International Monetary Fund (IMF) on 11.03.1947.

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