The reign of the strongest currency is crumbling but still alive…


We are used to headlines such as “A new record high in Dollar/TRY. However, depreciation in Dollar/TRY does not always mean the depreciation of national currency.

It is not surprising that TRY joins this trend as the dollar continues to appreciate against the euro, sterling, and other currencies. But since I am constantly looking at the Currency Basket, I can accurately see whether the national currency is actually depreciating or not.


Five years ago, the currency basket was 4 TRY, and the Euro/Dollar parity was around 1.18. The parity, which went above the 1.20 twice in the meantime, regressed again. At the beginning of the pandemic, the duo was trying to resist above 1.20, and then the decline started, and it still continues to fall today. The old name of the euro was ECU, and the lowest level recorded against the dollar was 0.71. At the beginning of the 2008 Global Crisis, which started in the United States, it tested 1.60.This movement, which looks like an exciting journey from a distance, is actually a 40-year-old story including the ECU.


While the Europeans, one of the main actors in this journey, held numerous summits in order to regain the superiority they lost against America in science and technology, the Americans gradually became better and better in space studies and producing high technology. Companies worth billions of dollars were either created by Americans or by people of different nationalities living in the United States. Today, we cannot see any EU companies ranking in the top ten anymore while Chinese and South Korean companies are always at the top of the list.


I agree with those who cannot find any reason for the euro to be more valuable than the dollar. The only valid reason for the euro to remain valuable can be the weakness of the US economy or political turmoil, because Europe’s economic size, decision-making processes in the continent, political fragmentation, leadership crises, and being caught between the China-US competition is not good for the euro. We see that the Euro/Dollar parity has moved up to 1.20 from 1.08 as of May 2020, until the United States Capitol attack of 2021.


Likewise, the record level in Euro/Dollar parity was tested during the 2008-2009 crisis, reaching 1.60.In the 1990s, which were described as the “golden years” for the US, the ECU had extremely depreciated against the dollar. The euro, on the other hand, seems to have started its journey at the beginning of the 2000s, when it was first put into circulation, at a level of 1.00.


Looking at the currency basket makes more sense…

When you look at the graph in lira’s journey, we fail to see ups and downs like the euro. After a plateau between 2002- and 2012, lira started to depreciate, losing value like a waterfall. Frankly, the depreciation of TRY against the dollar, which was highly criticized during 2018, is rather innocent compared to the process that started in 2020. Because, while the depreciation in 2018 spread over time, the loss that started in 2020 was quite painful. Today’s inflation rates seem to be the reason for this swift rise anyway. It is possible to see this movement in the currency basket, regardless of the parity. Thus, we can understand more easily whether Turkish lira has really lost in value.


It is not easy to connect the parity to any model or pattern, but it is clear that it is shaped by economic and political developments. Although there are bold comments like “The dollar’s reign is over”, there is not yet a currency that can measure or give meaning to wealth, poverty, assets, debts, and other parameters on a global scale. Beyond being just a currency, the dollar is the tool that prices most commodities and services. Although the depreciation of national currencies against the dollar means competition in exports, it also leads to expensiveness and even impoverishment.


I would also like to point out that the theory “Americans do not want to have expensive money” is not very solid. We cannot say that companies that sell high technology and have achieved segment loyalty thanks to their marketing power in many items do produce a competitive strategy according to appreciation or depreciation of the dollar.

Since a significant part of their manufacturing takes place outside the United States, they manage their profitability processes quite well and set the right price policy for new products.