Trade restrictions were eliminated and the Turkish currency was made fully convertible. There were also notable changes on the domestic financial market infrastructure. For the monetary policy to be effective what is needed is the existence of well-developed financial markets. For this purpose the Central Bank played a leading role in the creation of domestic money, foreign exchange and government bond markets. To further strengthen the financial markets infrastructure the Central Bank established a well-functioning electronic payments and securities settlement system. Contrary to these developments, the performance of the Turkish economy in terms of inflation and growth was not satisfactory. Aside from short-lived periods of relative stability, loose fiscal policies along with accommodative monetary policies were the main causes of high inflation. Under these circumstances backward indexation became a common practice in pricing behavior; inertia evolved in inflation, which was very difficult to eliminate. As inflation increased, inflation expectations also increased and a self-nurturing inflation cycle began. In the meantime, there were number of attempts to get out of this impasse. First, there was a monetary program introduced in 1990. This was very important in that it reorganized and re-structured the Central Bank balance sheet and explained to the financial community and to the general public how the monetary policy operated. It was the first time when certain monetary concepts like base money or central bank money were brought to the attention of the public. However external developments like the first Gulf war brought this program to an end.

Except the temporary amendment concerning the short-term advances to the government before the Second World War, no major amendments were made to the Central Bank Law. 1950s and 60s were relatively easy years. However, the authorities thought that the provisions of the Law of the Central Bank fell short of meeting the necessities of contemporary central banking. Therefore, on January 14, 1970 a new Law on the Central Bank of Turkey was adopted. The new Law brought in changes on the structure of the Bank as well as changes in its policy implementations. The most important organizational change was replacing the General Director, the highest post in the Bank, with the Governor. As regards policies, the Bank was directly authorized to set monetary policy in line with the development plans and annual programs. The Bank was also authorized to conduct open market operations in order to manage money supply and liquidity and was entrusted with medium term discount credit facilities to real sector through the intermediary of commercial banks. In the 70s, there were significant developments in the world economy. In the aftermath of the first oil shock in early seventies, inflation all over the world economies became rampant. Accordingly, the main focus was directed towards the fight against inflation. The 1980s and 90s were the years where a number of structural and institutional changes were introduced in the Turkish economy. With various measures taken between 1980 and 1989 Turkey’s both current and capital account transactions were fully liberalized.