Any currency in the world is subject to market volatility, including fiat currencies. The Turkish Lira is a good example of how bad things can get due to the decisions made by those in power. At the current inflation of 20%, Turkey faces a very tough future, and the current monetary policy will need to be revamped sooner rather than later.
Turkish Lira Dumps Spectacularly
It is not entirely surprising to see the national currency of Turkey go to a historic low at this time. While it is not a fate to wish upon any nation, the world needs a severe wake-up call. Current monetary policies in Turkey – and various other countries – are not sustainable for the future and will lead to ever-growing inflation. The time for change is now, and decisions need to be made quickly.
Earlier today, the Turkish Lira crashed to a low of 13.44 TRY per U.S. Dollar. Many analysts expected this depth to be unreachable, but they were quickly surprised when the exchange rate surpassed 11 TRY per dollar. Unfortunately, there doesn’t appear to be any recourse on the horizon, as Turkey’s current monetary poly settings do not favor any positivity. Instead, things may grow progressively worse.
Triggering this ongoing demise of the Turkish Lira is a recent press conference by Recep Tayyip Erdogan, the President of Turkey. In the conference, Erdogan confirmed the central bankś approach to interest rate cuts despite double-digit inflation is “the right way to go”. Moreover, he claims it is part of the “economic war of independence”, indicating more hardship on the horizon before things may begin to look up again.
Turkey faces a current inflation rate of roughly 20%. That is an astronomical rate and one that has pushed prices of essential goods and services to new heights. However, the salaries paid out in the Turkish Lira are severely devalued, creating economic turmoil for all 85 million people living in the country. For a currency that traded at 3.5 TRY to the dollar in mid-2017, things do not look in the slightest.
What Needs To Be Done
One obvious solution to this pressing problem is raising interest rates. Doing so will help cool inflation rates rather than letting them spiral out of control even further. However, doing so requires a clear head, rather than one avoiding any course change for the heck of it. Erdogan believes interest rates as “the enemy and will worsen the current inflation rates.”
Making matters worse is Turkey’s central bank’s monetary policy is largely dictated by Erdogan. At this rate, the President of Turkey will run his country into the ground. Three central banks chiefs were fired over disagreements in vision and policy in the past few years. The volatile Turkish Lira situation in the country will continue for some time, forcing more people to seek alternative investments for a store of value purpose, including precious metals and Bitcoin.