It's no secret that Turkey has been in a state of economic panic with 75% inflation year on year, the highest its been in 24 years. It doesn't take a genius to figure out that this is bad for individuals who hold the local currency the Turkish Lira, as their savings are completely obliterated.
When you see your currency devalue at this rate, people are going to flock to alternative methods of saving, this could be bitcoin, it could be gold, real estate, stocks, or foreign currencies like the US dollar.
Having a foreign currency will make sense for most people since it's such a liquid asset, we've seen how this played out in countries like Zimbabwe, Lebanon and Venezuela. People would rather hold dollars, pay in dollars and only convert to the local currency when they have to do it, to pay taxes or make certain purchases.
But when people have access to forex you allow for capital to leave the country or rather out of the local currency and it makes the inflation problem even worse.
If we have a look at the Lira compared to the US dollar you can see it's lost a considerable amount of value, it now takes more than 5 times the amount of Lira to buy 1 dollar, than it did in 2017.
Not Turkey's first rodeo
This is not the first time Turkey has had raging inflation, it was this high back in the 90s but many have long since forgotten those days and with it holding steady for over 2 decades, people don't expect a rapid rise in inflation.
If you have a look at their CPI over the last 2 decades, you wouldn't have predicted this hockey stick movement, but that's the thing, we don't know how bad our economies are until they get hit.
Covid exposed what was already there and with the Turkish government refusing to raise interest rates and keeping money cheap hoping to grow out it. But that doesn't seem to be the case and with cheaper money we seeing the prices of goods and services bid up as more currency units chase a smaller amount of assets, goods, and services.
Turkish CPI - Source: tradingeconomics
Stemming the bleeding
So what is the Turkish government doing to try and curb capital leaving the country and sure up the currency if they're not going to raise interest rates? Well, they've opted for a sort of bail-in of sorts.
Turkish companies could be forced to start selling their foreign currency holdings and instead only hold local currency, passing those reserves on to the central bank likely to try an establish an artificial peg or try to defend the lira and keep value in the system.
The measure is set to apply to companies with foreign exchange on their books worth more than TL15mn ($890,000) or exceeds 10 per cent of their total assets or annual revenues.
I personally don't see how this is going to make much difference and when this has the marginal impact I expect, it will only encourage the government to take far more radical steps which is a concern for anyone living in Turkey or has exposure to the economy in any meaningful way.
All I see is a desperate attempt to keep the party going as long as possible and a stepping stone towards more capital controls that will only make the situation a lot worse.
When you consider that Turkish trading partners in the EU are now feeling the pinch of inflation themselves as they continue to play hardball with Russia, It only seems like more pain ahead for the country and its citizens.
Source:
Have your say
What do you good people of HIVE think?
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Haha yikes, imagine having to do business this way.
Posted Using LeoFinance Beta
I can't imagine being an exporter or importer for sure
Is that just locally listed countries? Otherwise it doesn't make sense..why a foreign enterprise would keep any foreign reserves there!?
I was in Turkey recently and most people prefer and use Euros.
I am not sure about foreign enterprises or how it is enforced they have not given direct guides yet
But local companies would obviously need Euro/USD bank accounts to pay for things from different countries, so what I assume is they want that USD to be held by the central bank to sure up the Lira, and force companies to hold more LIra on their balance sheets and only get USD when they have to settle trades
It would make sense for normal people to rather trade in the Euro, the Lira isn't worth holding. So do Turks have EU bank accounts or are they using EUR in cash?
I was just there as a tourist so could really just see everything price in mostly euro but also Lira/GBP/USD.
Mostly people wanted just euros and not Lira. There are money changers everywhere so this is easily facilitated. Im not sure about the banking side of things. But even though the euro is trash, it went a long way in turkey!!
Thanks for giving your take of what's going on on the ground, really fascinating, and what is the sentiment of people in the country? What are they saying about the economy right now?
I was only in Antalya and didn't speak to a huge number of people. Generally, they were in good spirits but you could see the currency crash, and corona had hit them pretty hard.
from the news I read in the Italian newspapers we learn that the Turkish economy is in decline and inflation seems to be at 50%. Great post! Thanks for sharing
It's been as high as 75% annual inflation in Turkey as reports state, and they refuse to raise interest rates so it just keeps getting worse, now with supply shortages and Turkey rejecting Russia in favour of NATO, I don't see how their inflation will come down
thanks for this clarification, you are a very good HIVE user.
indeed, when there is currency inflation, there are many shareholders or those who have a lot of savings, it is okay to keep running out of savings, switch to precious metals or digital money, maybe bitcoin.
Well if you have bills and a salary in that inflating currency you are still forced to hold it and use it so only spare savings can be moved to metals and gold and as inflation rises spare savings isn't exactly easy to acquire