Date of Award

Spring 2020




L. Randall Wray, Ph.D.


This thesis presents the transformation of the fiscal and monetary structure of the North Cyprus economy after the 1999 Banking Crisis. Since the 1974 Civil War, the Northern part of Cyprus has been occupied by the Republic of Turkey. The “pseudo-state” declared in the North in 1983, the Turkish Republic of Northern Cyprus, has operated like a colony of Turkey. Initially, I lay out the fundamental changes in the fiscal and the monetary system imposed by the Turkish state after 1974. This transformation, I termed as “Turkification” of the monetary and fiscal structures of the economy, had created a political and socio-economic institutional structure in the North that had evolved to be overly-dependent on the Turkish economy for financial flows. I also attempted to highlight that the birth and the evolution of this institutional structure was instituted and catalyzed by the Turkish state via the Economic Protocols between North Cyprus and Turkey. As a consequence, the financial structure had grown to become weaker and vulnerable to speculative and Ponzi investments. This was exacerbated by the emergence of a political elite who did not carry out their mandated duties of supervision and regulation. This ultimately served the interests of the Occupation which I argue to be the ultimate annexation of North Cyprus into Turkey. I utilize the Modern Money Theory and different notions of political sovereignty to demonstrate that North Cyprus never had either financial or political sovereignty. The deterioration of the financial and economic situation in Turkey led to a currency crisis. The use of Turkish Lira and the overdependence on financial flows from Turkey ultimately led to the importation of the crisis. However, the effects were amplified due to lack of financial and political sovereignty together with the innate structural and institutional weaknesses instilled by the Occupation regime. This gave birth to the Banking Crisis of 1999. The Crisis lasted for 3 years and resulted in the bankruptcy of several commercial banks and the TRNC. The Turkish government intervened and bailed out the TRNC government which in return bailed out some of the banks. This crisis became a turning point for the economic and political relationship between North Cyprus and Turkey, because the Economic Coordination Office was established right after the Crisis. This Office drafted Protocols for the TRNC government to implement policies based on the conditionality principle. These protocols contained harsh austerity measures and enervated the structure of the economy. This is why I argue that the Turkish state utilized the Crisis to change the nature of the Protocols to increase its influence on the island towards the ultimate annexation. In the last parts, I recap the Protocols of the last 20 years, and illustrate their effects on the economy. Ultimately, I conclude that North Cyprus is facing a choice between annexation by Turkey or reunification with the South and attempt to evaluate the pros and cons of both choices. I also propose certain policies to reduce the financial over-dependence on Turkey and instill some political and economic barriers between North Cyprus and Turkey.

Access Control

On-Campus only