Raghu: > If so and if the Turkish central bank like the US Federal Reserve > is required by law to be lender of last resort to the treasury, we > can assume they are in effect the same entity.
It is a bit more complicated than that I think. As a mathematician I have no problems with assuming anything and then thinking under that assumption but here such an assumption is unwarranted, especially in these days of "independent" central banks rhetoric. Central banks are supposed to defend their "independence" to the last drop of their blood in these days. > In that case, clearly much of the $50B in reserves came from the > sale of Eurobonds. Actually, much of it comes from what is known as "hot money". There are about 75 billion dollars invested in the Turkish stocks and Treasury Bonds, mostly by foreign hedge funds. Since these Turkish assets are denominated in the Turkish currency, YTL, these dollars are converted into YTL and some of these converted dollars end up in the reserves of the Turkish Central Bank. Another important source of dollars to the Central Bank is the export income of the Turkish exporters. When the exporters are paid in US dollars, they convert these into YTL to pay their domestic obligations. And some of these dollars end up in the Central Bank reserves, too. As you know, central banks have no income other than the income they may derive from the financial assets they hold. They don't produce any goods or services to sell, or collect taxes. Their main activity is the creation and/or destruction of money. This is why the Central Bank can buy these US dollars although it has no direct income. Once it gets the dollars, it invests them into US dollar denominated bonds to obtain interest income. The Turkish Treasury Eurodollar bonds are among many US dollar denominated bonds that the Central Bank can buy provided that the current rating restriction is removed. Best, Sabri ____________________________________________________________________________________ Pinpoint customers who are looking for what you sell. http://searchmarketing.yahoo.com/
