The Value of National Currency (Revisited)
Sometimes, I get worried as I read or watch the discussions on interest rates and foreign exchange rates on social media. Most people think that the value of Turkish lira varies depending on some technical parameters. But, there is something they do not consider.
Most members of the Generation X, like myself, would have an interesting experience when they went abroad in the late 1980s and early 1990s. For instance, when I was in London for my late mother’s treatment, there were exchange offices that would convert your Turkish lira into British pound sterling. However, their exchange rate was different in Turkey. It was good in terms of seeing the difference between TRY’s domestic value and its outside abroad.
Today the Central Bank of Turkey is preventing TRY from reaching its real potential and value by constantly intervening in the exchange rate regime, which it transformed from a floating regime into a controlled one by means of countless new policies and regulations, just to make sure that our national currency fails to attain its true value. But for what purpose? Apparently, by doing so, the CBRT is trying to save the country’s economy and avoid further inflation before the national currency becomes almost worthless.
There are analysts who support this policy of the Central Bank: They say that there is not any reason for the US dollar to further appreciate against Turkish lira after the local elections. Obviously, USD/TRY rate will not suddenly start exhibiting a sharp upward trend on the morning of 1 April. But TRY will slowly begin to reveal its real value after 31 March. Today, Turkish economy is troubled with a major inflation problem which becomes even stickier with the ever-growing government spending, rising taxes, poor foreign exchange reserves and the wrong import regime. Another crucial problem is the wages that are constantly rising because the government does not even bother to terminate the causes of inflation and instead it just chooses to deal with its consequences.
This country is constantly changing in many areas including sports, art, culture, justice system, social life, foreign policy, education, science, politics and women’s rights. With that in mind, I wonder how analysts could think that foreign exchange reserves or monetary-fiscal policy alone can protect the value of the national currency. Just recently, a report was published saying that Turkey’s foreign exchange reserves will replenish and FX rates will go down. I really would like to know what the author was thinking when writing such a report! How could it be possible for any of these things to happen before Turkey achieves improvement and stability in areas I mentioned above, before Turkey determines the direction it needs to follow. What could possibly trigger a process where people will sell their foreign currency savings and thus help increase the Central Bank’s reserves? The bottom line is that the government pressure to protect the value of Turkish lira will not produce any results. Sooner or later, the market itself will decide how things will turn out.
Even an austerity programme which could be adopted immediately by the government after the elections will not get people to sell their foreign currency savings. Economic parameters can only improve for a while unless a more peaceful and more stable political and civil life is ensured. Did everybody forget the USD/TRY exchange rate, which was 1 to 19 in June last year? Indeed, people tend to believe in all anything they are told. When the lie is good, no one cares about the reality.
