When a currency collapses, as the Turkish Lira is right now, there are always questions about, well, what is happening to make it so? The answer, almost always, being no, what has happened? That is, not that there’s a disaster happening, but which disaster happened? The answer here, essentially, being Erdogan’s taking ever more control over the economy. It’s not that everyone sees some looming problem. It’s that having the one authoritarian controlling the direction of the economy makes a disaster near certain to happen, thus the disaster is that authoritarian control over the economy:
The Turkish lira has collapsed to an all-time low against the dollar, but the country’s leader has brushed aside concerns, telling Turks “we have our God.” The Turkish President Recep Erdogan then followed those comments up Friday by urging Turks to sell dollars and gold and buy lira.
God may well be a good investment for eternity but not known for being a great way to buy bread today. That concentration upon the one does rather devalue the other – just as the religious keep telling us that a concentration upon money is not paying enough attention to God.
The Turkish lira added to its steep losses on Friday, hitting a fresh record low, after President Donald Trump authorized the doubling of metals tariffs on Turkey.
The lira traded down 15 percent against the U.S. dollar at 6.38 after Trump made the comment in a tweet. The currency also traded down 20 percent earlier in the day, reaching a record low.
That’s not going to help of course but the Turkish economy doesn’t depend upon metals exports to the US:
I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!
— Donald J. Trump (@realDonaldTrump) August 10, 2018
Not helpful, but not the cause.
The lira extended its plunge to almost 17 percent and hit a fresh record low as the U.S. move dealt yet another blow to the currency buckling under the weight of runaway inflation and one of the widest current-account deficits in emerging markets.
Those are the economic causes. And if there was a truly independent central bank in Turkey then interest rates would be rising strongly to deal with both of those problems. But Erdogan has both reined in any independent sources of power and also set his face against interest rate rises. Which is exactly the problem that really worries, that concentration of power into one pair of authoritarian hands. Bitter experience tells us that this doesn’t work out well therefore, markets being forward looking, when it happens they wilt.