the economy. however, derivatives markets do not create new risks in the economy ; instead, they allow the management of the imminent risk. the origin of such thoughts is a common misperception with regards to transactions carried out speculative purposes. especially in foreign exchange markets, the level of exchange rate is determined not by futures transactions, but by spot market transactions. as transactions in the derivatives markets do not affect one - to - one the supply or the demand - side liquidity, they equally do not affect the price formed in the spot markets. in this case, speculative transactions that might be observed in the derivatives markets should not be expected to have a drastic impact on the spot markets. furthermore, as i have already pointed out several of my speeches, there are two groups of speculators in markets. the first group buys when prices go up, expecting prices to rise further or sells when prices go down, expecting prices to decline even more ; we can describe this group as bad speculators. this is the type of speculator mostly seen in turkey. also in the process of the fight against inflation, this group held its assets in foreign exchange, in line with old habits ; thus continuing to buy foreign exchange at high rates, with the belief that turkish lira would depreciate anyway, used no instruments whatsoever for risk management ; and when turkish lira appreciated under the floating exchange rate regime due to market conditions, the group criticized the stability program and policies implemented. this group of speculators, despite increasing volatility to a certain extent, cannot remain in the market for long, as they generally lose money. the second group or the good speculator, on the other hand, in line with his / her forecasts, sells when it is a bull market and buys when it is a bear market. leaving aside the problems of causing volatility, this group contributes to stability in the markets. within this framework, it is possible to see members of both groups in any market. in an effective market, it is not possible to make a profit continuously guided by bad speculation, nor do the prices formed in the market approach those prices indicated by economic variables. consequently, speculation does not have much effect on prices created in an effective market ; on the contrary, it may make a positive contribution to the markets by increasing liquidity. hence, speculation is not a threat in derivatives markets, but a guide in activating the spot market by increasing liquidity. another important point with regards

erdem basci : central bank responsibilities, global financial stability and payment systems opening remarks by mr erdem basci, governor of the central bank of the republic of turkey, at the “ payment systems conference ”, organized by al bank wal mustathmer group, istanbul, 5 december 2012. * * * distinguished governors of the central banks, distinguished guests and esteemed members of the press, i would like to thank you all on behalf of the central bank of the republic of turkey and myself for your participation in the “ payment systems conference ” organized by al bank wal mustathmer group. welcome to istanbul and turkey. participants to the conference, who are all experts in the field, will be discussing payment systems, their significance and contemporary approaches. before moving onto the topic of payment systems, i would like to briefly mention the main responsibility areas of central banks. distinguished guests, price stability, financial stability and the development of the financial sector are three significant fields central banks are responsible for, either partially or fully. the primary objective is price stability. the social costs to be incurred from the loss of price stability have been thoroughly understood by economists. academic studies indicate that an inflation rate that is on average higher by 10 percentage points may cause, on average, a quarter point decrease in the long term growth rates of the countries. 1 while the average inflation rate in turkey during 1974 – 2003 – the period with chronically high inflation rates – was 56 % ; average real growth per person was a mere 2 %. on the other hand, during the period of 2004 – 2011, when inflation was expressed with single digits, average real growth per person increased to 3. 3 %. our inflation target for the 2013 – 2015 period is set as 5 %. loans, exchange rates and inflation expectations are three crucial variables that are the determinants of price stability. therefore, decreasing excessive volatility in the credit growth rate and exchange rates highly contributes to price stability. the second area of central bank responsibility is financial stability. the loss of financial stability has deep and long - term impacts on both growth and employment. 2 the cost of preventing a financial crisis is much lower than the cost of the crisis itself. turkey ’ s recent history is a very good example of this statement. the economic crisis turkey went through in 2001 increased the country ’ s sovereign debt by 30 percentage points and severely affected growth and employment prospects. as of 2002, turkey focused on establishing price stability, financial stability and introducing structural reforms