The exchange-rate bubble bursts. Will the Turkish lira recover quickly
Over two months the Turkish economy lived through a wave of rises in the dollar against the Turkish lira that visibly weighed on the economy, peaking on 19 December 2021 at a selling price of more than 18.50 Turkish lira to the dollar
The Turkish president then gave a speech setting out a series of steps to repair the economy and strengthen growth, and the exchange-rate bubble burst: the rate collapsed to 10.30 Turkish lira to the dollar on that same night of 19 December 2021
New financial instruments for the global and Turkish economy:
The Turkish president launched a set of economic instruments that will in turn support the local currency and domestic growth. Among the most notable points in the president's statement was the following
“We will provide a new financial alternative for those of our citizens who want to put aside their fears about rising exchange rates”.
He went on: “From now on our citizens will no longer need to convert their savings from the lira into foreign currencies for fear of a rising exchange rate”.
On how the new mechanism works, President Erdoğan explained that if the returns for depositors holding lira at banks are greater than the rise in the exchange rate, they keep their returns, while if the exchange-rate gain is greater, the difference will be paid to the citizen.
The Turkish president also brought good news for exporters, who struggle to set prices because of exchange-rate swings.
He explained that a long-term exchange rate will be set for exporting companies directly through the central bank, and that where differences arise they will be paid to the companies concerned in lira.
Less than a week later, Turkish President Recep Tayyip Erdoğan said
“Since the new financial programme was announced and up to Friday afternoon, deposits in Turkish lira have risen by more than 23.8 billion, and they are still rising”.
He added: “In free markets the foreign-currency rate has to settle at the level it deserves”.
He went on: “I have a phrase I use, money flows to where it drains, and money is now finding its outlet. Things will get better still, we are in no hurry, a little patience and we press on”.
He explained that “the dollar is worth 11 lira now and has dropped below 10 lira. We will bring stability to the Turkish lira, working with the central bank, the Ministry of Treasury and Finance and the advisory institutions”.
He stressed that the new financial instrument will not cause losses for Turkish citizens, because they are protected by a guarantee from the central bank and the Ministry of Treasury and Finance.
İkram Göktaş, head of the Participation Banks Association of Turkey, said the Turkish economy would see a rapid recovery in 2022 as the effects of the Covid-19 pandemic recede.
In an interview with the Anadolu Agency, Göktaş spoke about the performance of the participation finance sector (participation banks do not work on interest), about Vakıf Katılım, which he heads, and about his expectations and targets for the sector in 2022.
He noted that the Turkish banking sector reacted quickly during the coronavirus pandemic and showed that it was fully prepared in terms of technological infrastructure.
For its part, the Central Bank of Turkey announced on Wednesday that it would offer incentives to anyone converting gold or participation deposits into Turkish lira deposits.
This comes as part of a series of efforts to support the Turkish lira, a week after President Recep Tayyip Erdoğan announced a plan to protect lira deposits from currency swings, the step that reversed a fall of close to 50 per cent in the lira against the dollar.
Analysts put the total value of gold accounts at present at 270 billion dollars (the equivalent of roughly 22.4 billion dollars), while accounts with a three-month maturity came to close to 5 billion Turkish lira.