In December 2021, the Turkish Lira had the lowest value in comparison to many foreign currencies. The main issue, however, is not that the Turkish Lira has the lowest value in the Turkish Republic's history. The main and actual issue is the Turkish Lira's excessive level of fluctuation in value. The unorthodox economic policy of decreasing interest rates to combat Turkey's high inflation was the cause of the large fall in the value. In October 2021, 1 USD was worth approximately 8 TL. It reached 18 TL by the middle of December 2021.
As a result, the Turkish government proposed a new economic package consisting of bank deposits protected from the dangers associated with foreign currency exchange rates. In short, if a person converts his or her foreign currency savings into Turkish Liras, the government will replace any losses incurred as a result of the Turkish Lira's depreciation against foreign currencies. When President Erdogan was unveiling the new economic package, the Turkish Lira started gaining value against the USD, and 1 USD was down to 10 TL by the end of his speech.
How the Announcement Caused a Huge Draw-Back in Exchange Rates
According to AK party resources and the Turkish Minister of Economy and Treasury, it was a great triumph for Erdogan, as the Turkish Lira gained value against other currencies while he was giving his statement on television. Furthermore, the new economic package was like a miracle discovered by Erdogan, according to the Minister of Economy and Treasury, who believes the Turkish Central Bank lowering indicator interest rates will reduce inflation. However, when the financial reports from the Central Bank of Turkey and the Turkish public banks were published on the internet, the Turkish economic agents realized that $7 billion were sold on the same day Erdogan delivered his speech.
Moreover, $20 billion were sold from the beginning of December until December 20th. In other words, the miracle was supported by the sales of the Central Bank and the public banks. Following December 20th, the Turkish government has been insisting on keeping the USD lower than 14 TL, and all the foreign currency reserves and gold reserves are being used to achieve this goal. Turkey keeps signing new swap agreements with China, BAE, and Qatar, and will likely sign another one with the Kingdom of Saudi Arabia. In conclusion, Erdogan and his bureaucrats are using the borrowed financial resources to control the value of the Turkish Lira against other currencies, and they do not care about transparency.
Citizens and businesspeople are perplexed by the Central Bank of Turkey's monetary policy, which is directly controlled by the Turkish president. Importing or exporting a product is directly affected by monetary policy, and it is highly challenging due to the difficulty of defining exporting prices or anticipating prices of imported semi-products and raw materials. The high level of fluctuation in foreign currency values is blinding Turkish and foreign traders. Doing business in Turkey is thus becoming increasingly challenging.
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