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The Turkish lira has been in free fall after President Erdogan demanded that the Turkish central bank lower interest rates for the third month in a row from 19% to 15%. The Turkish lira against the US dollar has weakened over the past decade, but yesterday the currency experienced a rapid deceleration, losing over 10% of its value in one day, reaching a record low. It is a historic event for a G20 country.
What makes the economic situation worse is that Turkey’s consumer price index has been accelerating over the last two years, now well above its central bank’s interest rate of 19.89%. With rising domestic inflation, real interest rates will collapse, encouraging investment capital to flee from foreign investment. A collapsing currency will now only accelerate this trend with inflation and negative real interest rates, as it is not clear how Turkey can stabilize its currency without a shortage of foreign exchange reserves to lean on.
In addition, $ 13 billion in Turkish foreign debt is set to fall due this month and next month. Debt repayments increase the demand for foreign currency, adding even more sales pressure to the Turkish lira.
The President’s goal of lowering rates is to increase economic growth, reduce unemployment and boost more exports. Yet it is the Turkish citizen who is facing a severe decline in purchasing power at an unprecedented rate in a period of rising prices and political instability.
With the value of the currency eroding at this accelerated pace, bitcoin is hitting new records against the Turkish lira. This year, it has proven to be the best performing value store compared to US dollars and gold alternatives. Money will flee to assets that can sustain local purchasing power, and bitcoin offers the exact solution to the type of chaos that is unfolding. The bigger question now is, “How will the Turkish people react?”