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“They have dollars, We have Allah!”: The Turkish Lira in Free Fall, Erdogan Maintains the Course

The Turkish currency fell by 7% in one day – a historic record. President Recep Tayyip Erdogan denounces “hostile campaigns” against Turkey. as for the Turkish Minister of Finance he must present a plan for economic reform,

The Turkish lira fell sharply on August 10, losing more than 7% of its value against the dollar, against the backdrop of a diplomatic crisis between Turkey and the United States and worries about possible repercussions on European banks. 

The Turkish currency briefly broke through the morning and for the first time the bar of 6 pounds to the dollar, after losing some 12% of its value. It then re-entered and traded at 8 am to 5.96 for a greenback, showing a drop of more than 7% on the day. The Turkish lira, whose value has fallen more than a third against the dollar and the euro since the beginning of the year, had already yielded more than 5% against the greenback the day before.

The fall of the pound comes just hours ahead of an expected speech by Finance Minister Berat Albayrak, also the son-in-law of President Recep Tayyip Erdogan, who is to present the country’s “new economic model”. In this particular context, the fall of the Turkish currency did not fail to make react the president who denounced the 9 August evening “hostile campaigns” against his country. “If they have dollars, we have our people, we have the right and we have Allah!”, He said. 

Structural problems and a diplomatic crisis

The Turkish President refers to the serious diplomatic crisis in which Turkey is engaged with the United States over an American pastor detained by Ankara. These two allies in NATO imposed last week reciprocal sanctions against government officials. A meeting between senior US and Turkish diplomats on August 8 has not led to any significant progress in easing tensions and observers now expect Washington to impose new sanctions to increase pressure to release Pastor.

These diplomatic tensions are not unrelated to the turmoil of the Turkish free market, but the markets are more worried about the economic policy of President Recep Tayyip Erdogan, who claims to be “the enemy interest rates “, refusing to raise them, as advised by many economists, in order to stem the galloping inflation which reached 16% in July on an annual basis.

A sign of the tight interweaving of the structural problems of the Turkish economy and of the external influence decried by Recep Tayyip Erdogan, market anxiety has been reinforced by the publication of a Financial Times article according to which the European Central Bank is worried about a possible contagion of this monetary crisis to some European banks very present in Turkey.

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