The Turkish central bank is beginning to stir controversy by doing what central banks do best: stealing money from their own people.
Background on Turkish Central Bank
The institution was founded with the money of private investors—Turkish citizens—in the early 1930s in the wake of the Ottoman Empire collapsing with its loss in World War I. In fact, it played an integral role in the early republic surviving and gaining economic and fiscal independence from France and the British Empire.
“The young republic’s concern about foreign pressures and desire to set up a state bank to guard the national interest were the most powerful drivers in the process,” noted Murat Koralturk, who is an assistant professor of economic history at Marmara University, located in Istanbul.
The only catch? Now, 80-odd years later, the descendants of these original investors are demanding to be fairly compensated. The bank earned $5.6 billion last year and is the country’s most profitable joint-stock company. Unfortunately, shareholders are being given almost nothing in terms of dividends, receiving as low as a few cents per year.
Central Bank of the People?
Although its formation was a pivotal part of establishing a stable and independent Republic of Turkey, the central bank has hardly repaid the favor to the public. Turkish citizens initially held 85% ownership of the bank, yet it still seems to favor foreigners over its own people. (Today, they still hold 45% of the firm’s private stock.) Originally, these local Turkish investors poured 4,200 lira. This amount was equivalent to 100 Resads, or circulating gold coins, and today would add up to over $1 million!
This disproportionate kindness toward foreign capital largely defeats the purpose of a country having monetary independence. In its early stages, for instance, the bank handsomely compensated a New York-based firm owned by a Swedish tycoon in exchange for a $10 million loan used to purchase gold bullion.
Now, after loyally waiting so far down the road, the children and grandchildren of the bank’s first stakeholders are only being given pennies for their forebears’ investments. Each year, the bank offers these private shareholders just a $140 dividend—not each, but split 6,000 ways! This means that most families receive just a few cents per year.
Moreover, these shares are not publicly traded; they were issued once and only change hands privately. Because of the pitiful dividend, there is no market for them. Essentially, the shares are worthless while the bank rakes in billions—supposedly in the “national interest.”
One shareholder who attended the bank’s annual meeting held in Ankara complained that his dividend didn’t even cover his trip to the capital city. There are arguments, however, that stakeholders (the people) shouldn’t expect a profit; the real point of ownership was simply to “hold [the bank and government] to account” as a form of public oversight.
The battle for the recovery of the full value of these shares in the Turkish central bank will likely end up in the courts, as patriotic moral arguments like the one above are unlikely to sway disaffected citizens.
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