Turks flee from lira to gold and Bitcoin

In recent months, many countries have been experiencing exceptionally high inflation. In the US and in the Eurozone, inflation reached the highest level. Highest level in decades, mainly due to high energy prices. Inflation is already worryingly high at more than 5% year-on-year, but there are countries where things are much worse. A good example is Turkey, where the lira has already lost more than half of its value against the euro and the dollar this year.

The official inflation in Turkey rose to more than 21% year-on-year in November. In reality, that percentage is probably much higher, because the exchange rate made the import of goods much more expensive. Due to wobbly monetary policy - the central bank has had four different governors in the past two years - and strong money growth, the market has lost confidence in the currency.

The depreciation of the lira is not only relevant for currency traders. It affects all 84 million inhabitants of Turkey. Groceries are becoming more expensive, savings are evaporating, and wages are lagging behind skyrocketing inflation. Entrepreneurs are also feeling the effects of currency depreciation, because their purchasing costs are getting higher and higher. Therefore, they have to raise their prices regularly. Goods from abroad in particular are considerably more expensive, because they have to be paid for in strong currencies such as euros and dollars.

Flight from currency

A week ago Reduced The central bank has reinstated interest rates, making real interest rates even more negative. So it's no wonder that savers are turning their backs on money en masse and taking refuge in Alternatives. Think of foreign currencies, precious metals such as gold and silver and cryptocurrencies such as Bitcoin. In this way, Turkish savers can still protect their purchasing power against inflation to some extent.

According to the latest figures, almost 59% of all money in bank accounts in Turkey has already been converted to foreign currencies, such as euros and dollars. Compared to the lira, these currencies are relatively stable. Other people opt for gold, which has historically been a tried-and-true means of saving. And that works very well, because with Buy gold Turks know how to protect their purchasing power in the longer term.

Gold price in Turkish lira

The graph below shows the development of the Gold price in US dollar, euro and Turkish lira since the beginning of this century. In that period, the precious metal was worth more than six times as much in dollars and more than five times as much in euros. We hardly see that on the graph. This is because this price increase is dwarfed by the price development in the Turkish currency. In other words, the depreciation of the euro and the US dollar is small compared to the Turkish lira.

Compared to the Turkish currency, the euro and the dollar seem to be stable currencies, but if we compare them to gold, we come to a different conclusion. These two coins have also lost a substantial part of their value against the precious metal over the past twenty years. In the past, savers were compensated for this with high interest rates, but that is no longer the case today. Without interest, there is no way to protect savings in the bank from inflation.

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Gold price in US dollar, euro and Turkish lira

This contribution comes from Geotrendlines