1856 - 1880

OTTOMAN BANK MUSEUM - THE FOUNDING YEARS AND DIFFICULT TIMES

SALT

“A chronological selection from the archives of the Ottoman Bank”

The Ottoman Bank Archives, one of the collections at SALT Research, not only shed light on the history of the Ottoman Bank, formerly the central bank and the treasurer of the Ottoman Empire, but also offer a representation of life during this period. The archives narrate the story of the little-known world of the late Ottoman and Early Republican period in which the bank played a central role.

 These archival documents presented in five different exhibitions in the Google Cultural Institute display the significant changes, developments and crises experienced over an 80 year period, from the Ottoman Bank's founding until 1933, when it gained a private bank status.

 Ottoman Bank Museum - 1856-1880 - The Founding Years & The Difficult Times

Ottoman Bank Museum - 1881-1894 - Redressing the Situation

Ottoman Bank Museum - 1895-1894 - The Expansion Period

Ottoman Bank Museum - 1914-1920 – War and Crisis

Ottoman Bank Museum - 1921-1931 - A New Balance & Epilogue

THE FOUNDING YEARS

At the time of its establishment in 1856, the Ottoman Bank was a modest, private British bank trying to find a niche in the still underdeveloped Ottoman financial market. Unable to open more than a handful of branches in the competitive scene of local bankers and moneychangers, the Ottoman Bank still managed to expand its activity by engaging in a number of financial operations and loans undertaken by the Ottoman state. Following a disastrous experiment with paper money, the Ottoman government sought the establishment of a bank of issue, which was finalized in 1862, with the Ottoman Bank outrunning all of its rivals in obtaining this privilege. Strengthened by the addition of French capital, the Ottoman Bank became the Imperial Ottoman Bank, marking the beginning of a durable and successful career as a state bank. However, the effort of issuing banknotes, organizing foreign loans and making advance payments to the government delayed the bank’s plans of developing its commercial functions.

Queen Victoria's Royal Charter authorising the foundation of the Ottoman Bank. 24 May, 1856
1A passage from the 1856 Reform Edict stating the Ottoman State's intention to reform the fnancial situation of the Empire.

The Foundation of the Ottoman Bank 1856

In 1855, two British entrepreneurs, Stephen Sleigh and Peter Pasquali, conceived a plan to establish an “Ottoman Bank.” The following year, the bank received its royal charter from Queen Victoria and started its operations in Istanbul. In a modest way, the new bank partly responded to the wishes expressed by Sultan Abdülmecid in the 1856 Reform Edict - which supported the Tanzimat reform movement - by playing an increasing role in the financing of the state. 

Queen Victoria reigned during the establishment of the Ottoman Bank (1819-1837-1901)
Sultan Abdülmecid (1823-1839-1861)

The Withdrawal of Kaimes 1862

One of the main obstacles that stood in the way of financial stability in the empire was the issue of kaimes (non-backed paper currency), adopted by the government to finance budget deficits. Although this paper money had been issued with the promise of maintaining its parity with gold, it rapidly depreciated, driving gold and silver away from the market, while causing enormous losses to its bearers. Consequently, a withdrawal of kaimes begun in 1862. They were redeemed in exchange of 40% cash and 60% treasury bonds, thus bringing some stability to the financial market. 

A 100-piastre kaime issued during the reign of Sultan Abdülaziz.
General Manager Alexandre de Ploeuc (1815-1887)
Instructions informing the public of the way in which kaimes will be withdrawn as of 13 July, 1862. 11 July, 1862
The depreciation of kaimes issued by the Ottoman government between 1856 and 1862 (in gold-piastres to a paper-lira of 100 piastres)

The First Ottoman Bank Banknotes 1863

Immediately after its establishment in 1863, the Ottoman Bank decided to make use of the privilege of issue it had been granted by articles of its act of concession. Contrary to the kaimes, which had a disruptive effect on the monetary system of the Empire, the banknotes issued by the Ottoman Bank were convertible to gold and could be presented at any moment for redemption. Therefore, the bank was bound to keep a gold reserve equal to at least one-third of its total issue. 

Several sketches drawn in preparation of the first 200-piastre banknote
The obverse and reverse of the first 200-piastre banknote
The reverse and obverse of the Izmir issue of the 200-piastre banknote. The difference with the Istanbul issue consists of the mention of Izmir as the place of redemption.

The Foundation of the Imperial Ottoman Bank 1863

After the accession of Sultan Abdülaziz to the throne in 1861, efforts towards the creation of an Ottoman state bank gained momentum. The Ottoman government had a marked preference for the Ottoman Bank, whose services it had appreciated for the past six years. The only concern of the leading statesman of the time, Fuad Pasha, was to avoid surrendering this crucial concession to British capital alone. Thus the government, thus, imposed the accretion of French capital. The result of this compromise was the creation of the Imperial Ottoman Bank, whose operations began in June 1863.

Keçecizade Mehmed Fuad Paşa (1815-1869)
A certified copy of the 1863 act of concession of the Imperial Ottoman Bank. 1892
 Sultan Abdülaziz (1830-1861-1876)
Various sketches drawn for the design of the new five-lira banknote
Proofs of the new five-lira banknote

Two-and Five-Lira Banknotes

On 7 May 1868, the Ottoman Bank withdrew all 200-piastre banknotes it had issued in Istanbul, and introduced 10,000 new five-lira banknotes amounting to 50,000 liras. This banknote had in fact been designed much earlier and proofs had already been printed in various colors. The new banknote was well received by the public, and encouraged by this success, the bank issued another 30,000 banknotes in the following year. Another banknote had also been issued in that same year with a value of two liras. The bank's total issue rose to over 300,000 liras with this last issue of 20,000 two-lira notes.

Various sketches for the design of the two-lira banknote
A forged five-lira banknote
The obverse and reverse of the two-lira banknote first issued on 30 June, 1869

1870-1880  DIFFICULT TIMES

At the beginning of the 1870s, the Ottoman Bank's deposit services and operations were still limited. The bank engaged mostly in advances to the Treasury, and in the organization of state loans–a lucrative but dangerous business. In doing so, the Ottoman Bank was linking its future to that of Ottoman finances. The partial bankruptcy of the state in 1875 had exposed the dangers of such operations. As the Ottoman State's credit plummeted, so did the value of the Ottoman Bank shares on the London and Paris markets but the Ottoman Bank was cautious despite this rather grim situation, it was confident enough to issue a new banknote, the most intriguing one in its history.

Kâmil Bey's Endowment to a Dervish Lodge 1870

On 13 March 1870, Mehmed Kâmil Bey, known by the nickname of "Mahşer Midillisi” (literally, meaning, the pony of the apocalypse), signed a deed of endowment stipulating that there shall be a prayer recitation at the Kasımpaşa Mevlevi Dervish Lodge for the soul of his late wife. In return for their prayers, the endowment would meet the candle and coffee needs of the dervishes. What made the endowment rather interesting was that it was not in cash but in bonds to the amount of £260, the yearly return of which would be delivered to the lodge. Since the bonds were to be deposited at the Ottoman Bank, the sheiks became bank customers. Thus was born an interesting link between tradition and modernity, which would continue until 1925, when a new law banned all dervish lodges in Turkey.

The Kasımpaşa Mevlevi Dervish Lodge
Mehmed Kâmil Bey (?-1879), chief of protocol at the Ministry of Foreign Affairs and known by the nickname of the "Pony of the Apocalypse"
Mehmed Kâmil Bey's endowment deed to the Kasımpaşa Mevlevi Dervish Lodge, 13 March 1870
The receipt delivered by the Ottoman Bank against the deposit by Mehmed Kâmil Bey of £360 in bonds in the name of the Kasımpaşa Mevlevi Dervish Lodge and the mosque of Demirciköy village
Letter from the Genel Directorate of Pious Endowments announcing the confiscation of the bonds endowed by Mehmed Kâmil Bey in conformity with the law banning dervish lodges, 17 November, 1925

The Bank's Second Concession and the Bankruptcy of the State 1875

The burden of domestic and foreign debt in the 1870s had completely crippled Ottoman finances, and the demand for Ottoman bonds kept declining. A new agreement with the bank, signed in 1875, sought to re-establish the Empire's creditworthiness by extending the bank's control over financial matters. Under these circumstances, the new Grand Vizier, Mahmud Nedim Pasha, announced on 6 October 1875 that the coupons of the Ottoman debt would be paid half in cash and half in 5% Treasury bonds. The news of this implicit admission of bankruptcy fell like a bomb and shattered what little reputation remained of the state's credit on the international financial market.

Portrait of Grand Vizier Mahmud Nedim Pasha (1818-1883), responsible for the decision of the 6 October, 1875, bankruptcy of the Ottoman State
Portrait of Grand Vizier Yusuf Ziya Pasha (1821-1876), whose signature appears on the 17 February, 1875, agreement signed between the government and the Ottoman Bank
Portrait of Finance Minister Yusuf Ziya Pasha (1826-1882), whose signature appears on the 17 February, 1875, agreement signed between the government and the Ottoman Bank.
Text of the agreement between the Ottoman government and the Ottoman Bank, increasing the bank's control over the state budget, signed on 18 May, 1874, and ratified on 17 February, 1875

The Return of Paper-Money 1876-1878

By granting Ottoman Bank the privilege to issue banknotes as part of the 1863 concession, in a way, the Ottoman government had given a reassurance to stay away from issuing paper money, and thus causing harm to the financial market. However, the bankruptcy of 1875 and the conflicts in Serbia and Montenegro in 1876 had left state finances in shambles, and the government, asking the Ottoman Bank to suspend its privilege, engaged once again in issuing paper currency. From August 1876 to December 1878, approximately 1,800,000,000 piastres (1,800,000 liras) in kaimes were issued by the state and numbered by the Ottoman Bank. These new kaimes, issued in denominations of 100, 50, 20, 10, 5, and 1 piastres, would soon contribute to a monetary catastrophe reminiscent of earlier paper money experiments: within two and a half years of their issue, the 1876-1878 kaimes had lost approximately 90% of their value against gold.

An example of the paper-money issued in 1876-1878: 1-piastre kaimes
The value of a paper lira in gold piastres, September 1876-March 1880. The value of kaimes had rapidly dropped, reaching approximately 10 % by the last year of their circulation
An example of the paper-money issued in 1876-1878: A 100-piastre kaime
An example of the paper-money issued in 1876-1878: A 50-piastre kaime
An example of the paper-money issued in 1876-1878: A 10-piastre kaime

The Administration of the Six Indirect Taxes 1879

The bankruptcy of 1875 had catastrophic consequences. The Empire had lost its creditworthiness on Western financial markets and was therefore unable to obtain the new loans it requires to keep its finances afloat. Any solution seemed unsustainable due to uncertainty and the remaining unpaid Ottoman debt. In an effort to find a resolution, the major creditors of the state, led by Morgan Hugh Foster, general manager of the Ottoman Bank, signed a tax-farming contract with Grand Vizier Said Pasha on 22 November 1879. According to this agreement, the state would surrender to these creditors the revenues of a number of dues and taxes–known as the Six Indirect Taxes–as payment of its outstanding debts.

Morgan Hugh Foster, then general manager of the Ottoman Bank, was among the signataries of the 1879 contract establishing the Administration of the Six Indirect Taxes
Grand Vizier Said Pasha (1838-1914) -known by the nickname of "Küçük" (Small)- represented the Ottoman government in the signing of the 1879 contract leading to the establishment of the Administration of the Six Indirect Taxes
A bond of the 1870 Ottoman Loan, one of the last loans realized by the Ottoman State before the bankruptcy of 1875
The contract confirming the establishment of the Administration of the Six Indirect Taxes. 22 November, 1879

An “Ottomanist” Banknote 1880

A new banknote, first issued on 15 July 1880 by the Ottoman Bank, was rather unique for a number of reasons apart from the fact that it was the bank's first one-lira note. First of all, although it was issued in 1880 during the fourth year of the reign of Sultan Abdülhamid II, it bore the date of 1875, and carried the tuğra (monogram) of Sultan Abdülaziz, who was dethroned in 1876. It appears that the banknote had been prepared and printed in 1875 but had been on hold since, due to the critical financial circumstances of the time. The most interesting aspect of the banknote, was that it carried inscriptions in no less than five languages: Turkish and French, as usual, but also Greek, Armenian and Arabic. The use of multiple languages was very much reminiscent of the Ottomanist ideology, promoting the union of the different communities that made up the Empire. The issue, however, was a disaster, as the first round of 8,000 notes was returned to the bank almost immediately. Later attempts to re-issue the same note, in 1883, 1890, 1892, and 1895, met with the same difficulty. Finally, the banknote was withdrawn from circulation in 1898.

The obverse and reverse of a specimen of the Ottoman Bank one-lira note, dated 1875, but issued in 1880
A detail from the one-lira banknote: Armenian and French inscriptions on the lefthand side of the note
Empire united under a banner bearing Muslim, Christian and Jewish symbol
A detail from the one-lira banknote: Turkish inscriptions in the center of the note
Abdülhamid II (1842-1876-1909-1917), Ottoman Sultan at the time of the issue of the one-lira note bearing the monogram of his predecessor, Sultan Abdülaziz
A detail from the one-lira banknote: Arabic and Greek inscriptions on the righthand side of the note.
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Kurgu ve anlatım / Concept and narrative — Edhem Eldem, Boğaziçi University
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