The Turkish Bail-In Begins
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:
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