Financing of these deficits has accelerated money growth and stimulated high real interest rates. The most recent developments are a reflection of the fact that Turkey has dedicated itself to solve the above-mentioned problems. Turkey is fully aware of the fact that this chronic high inflation prevents the whole economy from settling on a sustainable high-growth path and from integrating with the global economy. BIS Review 79/2000  4  The ambitious disinflation program rests on three pillars: (i)  up-front fiscal adjustment;  (ii)  a firm exchange rate commitment supported by consistent income policies; and  (iii)  structural reforms. This program has been supported by the structural reforms in four fundamental areas, namely banking sector, social security and agriculture and public finance. With the awareness of the fact that the soundness of the banking system is of vital importance in an environment where banks are major players in the financial system and are involved in international banking activities, Turkey is continuing to take measures to improve both the quality and the effectiveness of banking surveillance system on basis of the EU directives and BIS principles. The most radical change towards strengthening the supervision and financial structures of banks was the establishment of Banking Regulation and Supervision Agency (BRSA). Additionally, Central Bank of Turkey has pursued the most independent monetary policy possible. More recently, the first priority of the Central Bank has shifted from maintaining financial stability towards achieving price stability.

Market participants, however, are exposed to greater financial risks than before due to the appearance of more complex and dynamic transactions that have substantially increased uncertainties in the marketplace. Furthermore, there exists more universal banking today than in the past. Advances in IT technology, capital movements and geographical extension of banking business have become the new engines of global integration. The increased awareness of risk concept, together with the higher living standards and rapid technological development, has led to substantial change in the hedging strategies. It certainly appears to be the case that the emergence of new markets, such as highly liquid foreign exchange and derivative markets, has provided essential financial transactions and contributed to the rapid expansion of global finance. However, the speculative uses of the new financial instruments in these markets have increased the diversity of risks. Consequently, the availability of a wider range of financial instruments and deeper financial markets has enabled banks, non-bank financial institutions, institutional investors and companies to better manage their risks by using complex hedging strategies. II. Globalization  In this part of my speech, I will concentrate on the opportunities and challenges brought by globalization. (A)  Opportunities and challenges  We define globalization as more integrated financial markets, economies and trade, higher factor mobility, and spectacular change in information technology leading to the spread of knowledge  1  BIS Review 79/2000  throughout the world.