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lira. The currency has been under pressure from market factors including investors’ dismay at the Erdogan administration’s decision, based on alleged electoral “irregularities” to back the re-running of the Istanbul mayoral election that was lost to the opposition candidate at the end of March.
Ex-central bank chief refers to ‘return of Tobin Tax’ as Turkey re- introduces 0.1% levy on some FX sales. Turkey has increased a tax charged on some foreign exchange sales to 0.1% from zero. The move amounts to another effort by officials to resist alarming rates of dollarisation and ‘euro-isation’ amid the country’s embattled economy. The Turkish lira lost almost a third of its value last year against the dollar, slipping into a currency crisis in the summer. It has lost another 12% or more in the year to date. Turks have lost confidence in their currency. Warnings that a repeat of the currency crisis could be ahead have grown. The presidential decision on the “BSMV” tax was announced in the Official Gazette on May 15. Analysts said the move could deliver annual revenues of from Turkish lira (TRY) 1bn to 4bn ($165mn to $660mn) to the Treasury. The announcement stated that the BSMV tax would remain at zero for transactions between banks and with the Treasury, and also for those repaying foreign-currency loans to banks. “The BSMV (Tobin Tax) on foreign exchange transactions has come back,” former Turkish central bank governor Durmus Yilmaz wrote on Twitter, referring to a tax on foreign currency transactions first suggested by the economist James Tobin. Yilmaz, governor from 2006 to 2011 and now deputy leader of the opposition Iyi Party, said the main justification for the previous removal of the tax had been off-shore accounting of transactions, notably in Bahrain, Reuters reported. “Governments which are unable to protect the standing of a currency by controlling inflation try to keep citizens away from foreign currencies with tax,” he said. Foreign-exchange holdings of local individuals and institutions stood at $179.18bn as of May 3. The BSMV tax was reduced to zero in 2008, having stood at 0.1% since 1998.
Lira depreciation latest: Turkey imposes settlement delay on FX purchases above $100,000. Turkey’s BDDK banking watchdog on May 20 imposed a settlement delay for FX purchases by individuals of more than $100,000. The move could spark concerns about capital control in a country straining every sinew in the battle to protect its severely depreciated local currency from a further collapse. A letter sent from BDDK to banks showed the settlement date for FX purchases by individuals of more than $100,000—or equivalent in other currencies—will be the following day, Reuters reported. Turkey’s lira lost nearly 30% of its value against the dollar last year and has lost another 12% this year partly on domestic economic concerns and a set of Turkish and international political anxieties. Unorthodox steps to protect the Turkish lira (TRY) have included state banks selling dollars to prop it up. The latest move, effective May 21, is aimed at “contributing to the stable operation of financial markets and the effective operation of the loan system and the prevention of potential speculative transactions”, the BDDK said in the letter. The step will increase anxiety that, rather than pursuing structural reforms to address its economic turmoil, Turkey is introducing short-term measures. “This and similar steps are worsening the perception of risk by increasing concerns that capital movements will be limited further,” a banker told Reuters, adding that the move being implemented without any communication ahead of time damages confidence. Economists have been concerned about the central bank’s ability to protect the lira against another sharp decline, given that the bank’s forex reserves have decreased significantly in recent months. Dollarisation rates have surged since the currency crisis last August. During its nadir, the lira fell as much as 42% against the dollar.
“Steps taken [last month] by Turkish officials to shore up the lira could be the first move towards the imposition of capital controls, but we doubt these would be effective. If anything, they would probably store up larger falls in the currency,” Tuvey said on May 24 in a separate research note entitled “Turkey edging towards capital controls”. Tuvey added: “The evidence from other countries is that capital controls tend to work best when the state has strong control over the financial system in order to prevent leakages and
60 TURKEY Country Report June 2019 www.intellinews.com