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banks’ FX that it has taken via swaps. Now, even if we convince locals to sell FX by offering high interest rates, the FX #liquidity in the system to Swift a significant amount of USD is scarce. It [some FX cash for Swift transactions] should be swapped from London too. Karma is a...”
A sharp rate hike would only provide short-term relief. It would draw in some hot money hitmen. Stopping domestic thirst for FX while not preventing the USD/TRY rate from smashing through to a new low day after day would remain impossible soon.
What comes next can be tracked on the USD/Argentine peso (ARS) chart. The USD/ARS was trading in the 8s at the beginning of 2015. Now it is trading in the 70s.
The history of the Turkish lira also provides some hints. The earliest available Turkish central bank USD/TRY buying rate on the regulator's website is 0.0000028, recorded on January 2, 1950.
Six zeros were erased from the lira in 2005 and the figure on November 4, set by the monetary authority, was 8.4546, suggesting a 301,949,900% increase since the 1950 figure.
It’s mind-boggling, but it can be fairly written that the central bank’s USD/TRY buying rate has risen by more than three million times in the past 70 years.
Finally, let’s note that this does not necessarily mean that the lira will continue to steadily lose value. The government may pull out some FX from somewhere. Some hot money may arrive. Or a sharp rate hike may provide some short-term relief.
These temporary periods of relief have from time to time been extended to last a decade by former governments during the lira’s almost century-long history. Such a period was seen, for instance, from 2003 to 2008.
However, the secular trend in the Global South, or Third World or Emerging Markets (EM), currencies has been on the same track since the 15th century.
In the week ending November 13, the lira registered as the sharpest weekly return seen since 1994.
All but one of the years seen in this chart below are ‘keywords’ when it comes to Turkey. “1994”, “2001” and “2018” mark crises that struck Turkey alone while “2008” and “2009” mark the global financial crisis.
The “1994” process ended with the “2001” Turkish economic crisis that brought a political reset while the global crisis that started more than a decade ago and the “2018” crisis have not yet reached their conclusion.
19 TURKEY Country Report December 2020 www.intellinews.com
