Turkish President Recep Tayyip Erdogan has announced that he will be taking steps to launch state tenders in Turkish lira and allow commerce with China, Russia and Iran to be conducted in local currencies, in a bid to support the struggling currency.
A lot of business deals in Turkey are conducted in foreign currencies, such as the dollar or euro, making it easier for overseas companies to take part in deals with the state.
Speaking at an inauguration in the city of Kayseri, Erdogan also called on Turks to cash in their foreign exchange holdings and buy lira, reported Reuters. The announcement led to Turkey’s stock exchange, Borsa Istanbul, to declare that it has decided to convert all its cash assets to lira.
“In support of the call by President Erdogan, Borsa Istanbul decided to convert all its cash assets to Turkish lira and keep such assets in accounts denominated in Turkish lira,” says the exchange in a statement.
Commenting on the moves, Mena analyst at IHS Markit, Ege Seçkin, tells GTR: “The move will of course be a welcome step for trade partners like Russia and Iran currently facing the spectre of US sanctions. It would also likely boost demand for local currencies, including the lira, which might alleviate, even if at a minimal level.”
However, he adds that the moves represent an attempt to address the symptoms rather than the underlying problems ailing the country’s currency and its economy.
“These do not address the root cause of Turkey’s weakening currency: a chronically wide current account deficit, which is being financed predominantly by fickle portfolio investments, or hot money. This structural flaw renders the economy vulnerable to fluctuations in investor confidence, which, combined with political instability, security risks both at home and the near-abroad, populist economic policies, starts putting severe pressure on the value of the Turkish lira.”
The lira has lost a fifth of its value this year, hit both by concerns around the domestic political and economic climate, as well as a resurgent dollar.