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Turkish President Erdogan has informed his people Called gold and exchange it for Turkish lira. Also, Turks would have to exchange their hard foreign currency for the Turkish currency. With that call, he is trying to stop the lira depreciating and tame skyrocketing inflation. In 2018 Tried he also convinced the population to sell gold.
According to Erdogan, there will be a 'win-win situation' if all Turks take the gold out of their lockers and exchange it for Turkish lira. This would make it possible to inflation of more than 15% and stop the depreciation of the currency. It could also reduce the current account deficit and restore capital market confidence in Turkey.
However, it is questionable whether people are willing to sell their gold. The country is struggling with a major economic crisis. The economy is shrinking, unemployment is high and the currency is steadily losing purchasing power against the euro and the dollar. In March, the Turkish lira plunged 17% after Erdogan appointed the central bank governor Fired. A few days earlier, it had raised the policy rate by two percentage points to 19%.
Higher interest rates make it more attractive to hold money in Turkish lira, but it also means that borrowing becomes more expensive. And the Turkish government is not waiting for that, because Erdogan wants to keep interest rates low for his people and the national budget. That is why he is now trying to shift the blame to people who are renouncing their trust in the lira and Buy gold.
In Western countries, gold is still often seen as an investment, but in many other countries it is a fully-fledged means of savings. For example, in countries where money is rapidly losing purchasing power due to high inflation or devaluation. Turkey is a good example of this, as the lira has rapidly lost value against other currencies in recent years. In the last five years, the Turkish currency has depreciated by more than 60% against the euro.
To escape this currency depreciation, many Turks hold gold and foreign currency as a form of savings. These forms of wealth are easy to trade and retain their purchasing power much better than the local currency. Due to the corona crisis, wealthy Turks also sought refuge in the yellow precious metal last year, as we wrote earlier in This article.
Erdogan's call to exchange gold and foreign currency seems to make little impression on the population. And that's not surprising, because over the past twenty years, the Gold price in Turkish lira by an average of more than 25% year-on-year. That is much more than the interest that banks can give on a savings account in Turkish lira. It is therefore obvious that Turks will actually stock up on more gold after this call.
It is not only the population that is fleeing to precious metals, but also the central bank. Since 2017, the central bank's gold holdings have risen from 116 tonnes to more than 700 tonnes. In recent years, Turkey has even been the largest buyer among central banks. Despite a decline in foreign exchange reserves, the central bank continues to buy bullion. Could this restore confidence in the Turkish lira in the long term?
Turkey has significantly expanded its gold reserves in recent years
Turkey Continues to Buy Gold, Despite Decline in Foreign Exchange Reserves
This contribution was made from Geotrendlines
