Turkey Hit by Currency Crisis - Again!
Turks are rushing to buy gold as the new lira (TRY) drops to its lowest point on record in relation to the British pound and US dollar.
Gold Demand Rises as Lira Tumbles
The current crisis, which is Turkey’s second in as many years, sees the lira imploding as it plummeted from liras to the dollar to 7.37. Local holdings of hard assets such as gold and even US dollars have increased from $15 billion to nearly $220 billion in just three weeks. Some have considered selling cars and houses in order to buy gold in markets such as in Istanbul’s Grand Bazaar which reported sales worth $7 billion in only two weeks.
The fall of lira echoes the 2018 crisis, which saw it lose 30% of its value almost overnight, and led to high levels of inflation, which may now be on the horizon for the troubled nation.
In order to stem further bank runs, several banks have imposed fees on withdrawals, while Prime Minister Erdogan who has historically been against raising interest rates in order to fight rising inflation seems to be steadfast in his position. It was this unwavering view that led to the sacking of the then Governor of Turkey’s central Bank, Murat Cetinkya, who dramatically raised interest rates despite the PM’s calls not to.
This authoritative approach has driven many foreign investors away, and the attitude of the Erdogan government seems to be contrary to orthodox thinking. Finance Minister Berat Albayrak, who also happens to be the PM’s son-in-law has already stated that the lira’s competitiveness is more important than the exchange rate volatility.
The recent peace deal between the UAE and Israel, backed by the U.S. has caused some controversy in the Middle East, in particular with Erdogan. The validity and stability of the agreement is already under question and may be a cause for concern in the region. This combined with a failing currency adds more pressure on the Turkish government and while the outlook for the lira does not seem particularly positive, a total currency collapse could have broader, and more potentially damaging consequences for the global market.
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