At the Central Bank, we have also shifted the currency composition of our reserves from euros to US dollars. The share of euros in our reserves has fallen from 73% to 54%, and there has been a parallel shift in the composition of our foreign exchange liabilities. Now let me point out two major positive effects of introducing the euro into the Turkish economy. The first positive effect is that elimination of the transaction costs arising from a multitude of European exchange rates has encouraged the use of the euro as a unit of currency. Between 1994 and 1998, the euro’s share in the current account’s foreign exchange receipts averaged 37% and in its foreign exchange expenditures averaged 32%. Eighteen months after the introduction of the euro, these figures have barely changed: the respective shares are 40% and 33%. The second positive effect is that the Convergence Criteria of the Maastricht Treaty, and the Copenhagen Criteria, require economies seeking to join the EU and EMU to become efficient market economies and achieve a high degree of verifiable convergence with the EU. As we all know, the requirements include BIS Review 109/2000  2  price stability, low market-based interest rates, stable exchange rates, and sustainable public finances. And whether or not it is considered immediately important for Turkey to become a member of EMU, these convergence criteria can give us an effective means of disciplining our economy.
I personally think that acceptance of the euro in daily life and financial transactions will come faster in Turkey than in other countries, for three reasons: the large numbers of Turkish citizens living in Europe, the large volume of trade and tourism transactions with Europe, and the consistent stability of the deutsche mark for 20 years and more. The introduction of the euro has reduced transaction costs and removed the risks connected with more volatile currencies, increasing the incentives for European capital markets to rely more on direct financing. A deep, liquid, and efficient euro bond market will be welcomed by Turkish sovereign and private bond issuers. Moreover, the volume of transactions in the euro bond market is expected to be much larger than today. 1  BIS Review 109/2000  Increased acceptance of euros in Turkish trade and financial transactions, of course combined with an environment of low inflation, will make direct investments in Turkey more attractive to European firms. Turkey’s presently very small total of direct foreign investments from European investors would surely be encouraged to grow by the disappearance of foreign exchange risks. Under such circumstances, both Turkish and European banks could be expected to increase their merger and acquisition activities. For the short term, the most important goal is to promote the euro as an international currency. Success will crucially depend on the new currency’s acceptance by the people of the EMU countries and other countries as well.