THE RELATIONSHIP BETWEEN CASH MANAGEMENT AND CENTRAL BANK TURKISH TREASURY Cash Management Department

Legislative Framework Contents 1 Cash Management & Central Bank 2 Legislative Framework Coordination between Treasury and Central Bank 3 Operational Issues 4 5 Conclusion

Cash Management & Central Bank Budgetary Payments and Collections 1 2 Debt Management Payments by Treasury to general budget institutions and transfers from general budget are made through CB CB acts as the fiscal agent of Treasury at the bond auctions Treasury provides significant input for CB’s liquidity management and there is a n active cordination between Treasury and CB Treasury TL and FX reserves are remunarated at CB. . Liquidity Management Remuneration of Treasury Reserves 3 4

Legislative Framework – I : General Overwiew CB Governance, Treasury&CB Relationships, Liquidity Management Law no 1211 - CB Law Law no 4749- Law on Public Finance and Debt Management Law no 4059- Treasury Law Budgetary Payments and Collections Law No 5018 – Law on PFMS - Regulation on CB Tariffs Decree on Public Electronic Payment System - Correspondent Bank Protocol Treasury Internet Banking System Protocol between Treasury and CB Debt Management Aforementioned Laws (no. 1211, 4749) and Secondary Legislation Financial Services Agreement between Treasury and CB Remuneration of Treasury Reserves - Aforementioned Laws (no. 1211, 4749) - Remuneration Protocol between Treasury and CB

Legislative Framework – II : CB Governance & Relationship Between Treasury and CB Role of Treasury Role of CB The Central Bank shall be the financial and economic advisor, the fiscal agent and the treasurer of the government (Art 4). At least 51 percent of the Central Bank’s A class shares shall belong solely to the Treasury (Art 8). Preference of Treasury is an important factor in the domination of the CBRT Board which is selected by the General Assembly. The Undersecretary of the Treasury or Deputy Undersecretary to be designated by him/her may participate to the meetings in a non-voting capacity The procedures and principles regarding payment of interest on the deposits belonging to the Undersecretariat of Treasury shall be set forth jointly by the Bank and the Undersecretariat of Treasury (Art 41). The Central Bank may not grant advance and extend credit to the Treasury and to public establishments and institutions, and may not purchase debt instruments issued by the Treasury and public establishments and institutions in the primary market (Art 56). It provides all kinds of services like money transferring and money orders with fee. CBRT pays interest for the domestic and foreign currency based deposits of Treasury. Content Layouts

Monetary Policy Committe Monthly Coordination Meetings Coordination Between Treasury & Central Bank Monthly meetings held at Director General level. DG of Markets from CB and DG of Public Finance (Cash, Debt and Risk Management) from Treasury Main discussion topics: Recent developments in fiscal policy, budgetary developments, borrowing program, Recent developments in liquidity management, A strong ad-hoc communicational channel between Treasury and CB employees. Frequent thematic meetings about on-going projects. Monetary Policy Committe Monthly Coordination Meetings Ad-hoc Communication The Undersecretary or Deputy Undersecretary participate in the meetings without having the right to vote. A means of high level coordination between monetary and fiscal policies.

Operational Issues Function Related Legislation/Agreement/Protocol Main Operational Issues Handled Budgetart Payments and Collections Treasury Internet Banking Protocol Payments from Treasury accounts to general budget institutions Timing of payments Real time monitoring of Treasury accounts Contingency manual Decree on Public Electronic Payment System Budgetary payments of general budget institutions Respective responsibilities of MoF, Central Bank and Treasury Infrastructure for daily cash requests of general budget institutions Regulation on CBRT Tariffs Unit prices for each kind of transaction realized by CBRT on behalf of Treasury Correspondent Bank Protocol Responsibilities of correspondent bank with regards to general budget collections Timing and contingency framework Debt Management Financial Services Agreement Procedures and commissions regarding redemption of Treasury bills and bonds Remuneration of Treasury Reserves Remuneration Protocol Mechanism for the remuneration process Interest rates and accounts to be remunerated

Conclusion With the central bank reform and public finance and debt management law after 2001 a strong governance framework for CB has been established. The relationships between Treasury and CB has been grounded on a more professional manner as completely two separate entities with their own goals and agenda. With public financial management reform by law 5018 and decree on public electronic payment system along with the new design of TSA in a modern manner, CBRT has undertaken a broader role in the payment processes. All aspects of cash, debt and liquidity management requires a strong coordination between Treasury, CB and MoF. In Turkey’s case this challenge is handled mostly by a clear documentation of roles and responsibilities by the relavant legislation and agreements. Nevertheless, the importance of informal and ad-hoc communication and collaboration culture among those institutions could never be undermined.