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Just a few years ago, the Turkish lira was extremely stable. Turkey is now coping better than other countries with the pandemic and economic growth remains relatively high, Deutsche Welle said. So why does the pound keep falling?
Turkey’s Finance Minister Berat Albayrak, who is President Erdogan’s son-in-law, recently put forward new optimistic forecasts for the country’s economic growth. However, the Turkish lira continues to depreciate. In the past 12 months, the Turkish currency has depreciated against the dollar by more than a third and against the euro by almost 50 percent.
According to currency expert DZ Bank Zoren Hetler, this development is not surprising. He told the Frankfurter Allgemeine Zeitung that the reasons for the persistent depreciation of the Turkish currency were not economic but political.
Political factors are leading
Only a few years ago, the pound made an extremely stable impression, but since 2016, after the failed coup attempt and the subsequent transformation of Turkey into an autocratic presidential republic, the situation has changed significantly.
The subordination of various state institutions, such as the Central Bank, to Erdogan’s will and regulations played a particularly fatal role. This had a catastrophic effect on the stability of the Turkish currency.
Currency expert Hitler, who has been studying the development of Turkish finance for years, provides data for comparison of other rapidly developing economies as a basis for comparison. From this comparison, it is clear that not all of them are developing as downward as Turkey. The South African rand, for example, has developed in a similar way to the Turkish lira for 10 years. As of late 2016, however, the development lines of the two currencies began to diverge.
The fact is that the South African rand has depreciated 20% since 2016, but it still appears stable compared to the Turkish lira, which has lost more than 60% of its value against the dollar over the same period.
In terms of economic growth, Turkey is ahead of South Africa. The Bosphorus country is also coping better with the coronavirus pandemic. Therefore, experts say, the reason for the depreciation of the Turkish lira cannot be found in the two elements. All that remains are the political factors that Hitler wrote about, namely: “The reliability and stability of political conditions, as well as the reputation of the central banks in both countries.”
Independent monetary policy
South Africa, of course, is not a model for political stability and reform efforts. There is also abuse and corruption. But the country has democracy, freedom of the press and independent justice. “And any attempt to restrict the monetary policy powers of the Central Bank has been stifled in its infancy,” said the German expert.
In Turkey, however, the president of the central bank was replaced in 2019, just as he was trying to reduce inflation by raising the key interest rate. And Turkish President Erdogan has repeatedly said that he is not a friend of high interest rates, despite the advice of all experts on the subject. Another political factor currently influences the weakness of the pound’s exchange rate: tensions in the Nagorno-Karabakh region, where Turkey defends the Islamic State of Azerbaijan.
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