OTTOMAN BANK MUSEUM - THE FOUNDING YEARS AND DIFFICULT TIMES

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. 

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. 

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. 

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.

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.

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 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.

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.

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.

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.